Planning for CMS construction means guessing how costs will grow over the years
In January, Charlotte-Mecklenburg Schools said it would cost $148 million to build a new Second Ward High School uptown. Less than a month later the estimated price tag jumped to $186 million.
That’s an increase of more than 25%. Because costs for all projects rose by a similar amount, a plan that had encompassed 40 projects in January was pared back to 30 by February — and still cost a bit more.
What happened? Escalation, or the county’s term for estimated inflation.
David Boyd, the county’s chief financial officer, says the county estimated inflation for projects in the 2017 bond package too, but the change wasn’t as dramatic.
“In 2017, was anybody talking about inflation? No, right? That’s a recent phenomenon and it’s hit construction projects exceptionally hard,” he told CMS board members and county commissioners recently.
Anyone who’s been to the grocery store has seen the same thing: Less for more. And the county is trying to budget not just for the next week or month, but several years in advance.
If voters approve school bonds in November, the money will cover projects that start between 2024 and 2028. Boyd says the final bills will be paid as late as 2032.
Boyd compared construction inflation to compound interest, in which a small deposit into an interest-bearing account grows dramatically as interest accrues, then collects more interest over time.
“You know, the most powerful force in the universe is compound interest,” he said. “That’s what inflation is. And it adds up to a really big number.”
That means the first projects to start construction might increase by only about 6%, he said. But the costs balloon for later ones.
CMS construction consultant Dennis LaCaria described how that has played out in the past: The district built Rocky River High School for about $52 million in 2010. A similar building in south Charlotte, slated to open in 2024, runs about $130 million.
School board member Summer Nunn asked Boyd how much confidence he has in his projections.
“I wouldn’t say very low,” he said, “but much less certain than they have been in the past. There’s just so much going on in the economy right now.”
Voters will be asked to approve a dollar total for school bonds, but not a project list. If the total turns out to be too low, some projects might have to be deferred — or the county could cover the gap with other types of borrowing. If it’s more than what CMS needs for the projects that are promised, the county could borrow the full amount and let CMS add projects, or borrow less and stick with the list. But CMS officials say there are more urgent projects waiting to be done and delays only run up the cost.
County commissioners plan to study bond plans for CMS and for other county facilities, such as parks, jails and Central Piedmont Community College, in April. A budget vote is planned for May. Boyd says he’s advising commissioners not to go above $2.5 billion for CMS — which would still result in a significant property tax hike over the next five years, as well as requiring CMS to pare its list of 30 projects back even further.
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