FHS Options Limited Without Official Offer

Even an institution with a $1 billion endowment can suffer from sticker shock.

Fayetteville High School and the University of Arkansas have been engaged in public eye-batting for months about the potential of selling the 40-acre high school campus to the state’s expanding flagship university.

But the relationship that once looked like a match made in heaven won’t be consummated any time soon and now both parties have agreed to see other people.

The deal-breaker is the likely asking price for the 55-year-old campus and losing the UA as a suitor could mean a lost opportunity for a growing university and higher property taxes for Fayetteville citizens.

A Fayetteville School District appraisal prepared May 7 valued the campus at $61.3 million and the university’s appraisal received June 26 placed a $56.5 million tag on the school.

However, e-mails from UA vice chancellor Don Pederson obtained by the Northwest Arkansas Business Journal under the Arkansas Freedom of Information Act indicate the university and the district could be more than $20 million apart on the property’s worth.

The UA’s sudden disinterest in purchasing FHS is yet another twist in the school board’s ongoing debate about whether to renovate and expand on the current site or to move the high school.

The UA position is that it doesn’t want to appear to be influencing the school board decision, yet its refusal to make an offer for FHS has effectively taken an option away from the district’s consideration.

Pederson requested a facility assessment of FHS on Sept. 11 but it would not have been ready in time to present at the Sept. 21 meeting of the Board of Trustees.

In a Sept. 11 e-mail, Pederson told associate vice chancellor Mike Johnson the purpose of the assessment was to “estimate what it will cost us to bring each facility up to speed so we can use it so we could deduct that cost from the appraised price to get the value of each facility to us.”

Pederson said no further actions regarding FHS, including the facility assessment, are currently taking place.

“We will have to understand the value of the property to us if we make an offer,” Pederson wrote via e-mail. “However, determining the value to us will be somewhat time consuming and of little ultimate value if Fayetteville Public Schools do not want to sell.”

Without the assurance of a substantial offer for FHS from the UA – crucial to subsidizing construction of a new school elsewhere – Fayetteville superintendent Bobby New and the board have refocused on options at the existing site and have even tossed around the idea of expansion through land purchases.

“The signal I’ve gotten is that they are going to move on to other things for the time being,” New said. “But our board is ready to provide opportunities for kids.”

The scenario of an $86 million school at a new site, at this point on 100 acres the district bought for $5.5 million on Deane Solomon Road in west Fayetteville, is the most economically feasible if FHS could fetch its appraised value.

Fayetteville, like Bentonville, is not eligible for state assistance because of the district wealth-based Lake View case funding formula.

Paying for an expanded campus on the current site without state funding or land proceeds could range from $65 million to $113 million and require a massive millage hike that would have to pass muster with voters who rejected a 4.8 mill increase for operating costs and teacher raises in 2005.

Land Grab

Both appraisals take the recent improvements to FHS into account when calculating depreciated value, but the UA is only interested in the land.

The UA, which has a record enrollment of 18,648 this fall and is targeting a goal of 22,500 students by 2010, has spent $19.5 million to acquire land adjacent to and nearby the campus since 2001.

Counting $136 million on athletic facilities, the UA has spent more than $578 million for new construction and renovation since 2000.

The Northwest Quad cost $40 million, the Harmon Avenue parking garage cost $29.9 million and the new J.B. Hunt Building came in at around $31.6 million.

The cost of a single similar facility plus the sale price of FHS quickly pushes the UA’s investment past $100 million.

If the price the UA is willing to pay is substantially less than the appraised value, the costs to the Fayetteville school district for moving versus staying begin to align.

That’s welcome news for community activists like Build Smart, a volunteer organization formed to advocate for keeping FHS at its current location. Build Smart spokeswoman Janine Parry, a political science professor at the UA, said the organization’s ultimate purpose is to convince voters of the benefits to passing a tax increase.

A millage increase for construction at the current site is anywhere from 5 mills to 8 mills (see chart, p. 19), which translates to a property tax increase of 9.4 percent to 15.1 percent, not counting a 0.9 mill increase being considered by the City Council to make up for the sales tax shortfall.

“It’s going to be expensive,” New said. “I think the board has a lot of public discussion to make. [Keeping the current site] seems to be what the majority of our vocal community wants to do.

“I think we’re going to go through that exercise and it may unravel a plan that we’ll all be able to embrace and move forward.”

Mixed Signals

In a May 15 e-mail to New, Pederson said the FHS appraisal wasn’t acceptable to the university.

“I do not believe the depreciation on all your buildings was adequately addressed,” Pederson wrote. “I may have not seen this detail for each building but everywhere I looked it appeared that a consistent 10-year depreciation was used. If so, that would not be realistic.”

Pederson told New he would have UA project manager James Ezell contact Fayetteville school district financial officer Lisa Morstad about doing a buyer’s appraisal. Pederson also alluded to the potential fallout of the UA and FHS being far apart in their estimation of a sale price.

“We are interested, but the seller’s appraisal gives me great pause and I realize you will have to deal with the public’s perception of it,” Pederson wrote May 15.

The earliest e-mail from Pederson released to the Business Journal related to FHS is dated June 28, 2006. In it, Ezell updates Pederson on a “ballpark” estimate for the property.

“[The appraiser] thought the land could be valued at $7 per square foot with the main school building valued at about 50% or less of the cost of a new facility,” Ezell wrote. “Also, their administration building would have a replacement cost value with little depreciation.

“Based on this, maybe a budget amount at today’s value and including Harmon Field might be in the $25 to $30 million range.”

With the appraisals double that, it’s no shock the UA would reign in its interest on a transaction that at list price would be three times as much as all the acquisitions it has made in the last six years.

Ezell advised Pederson the UA’s appraisal was an accurate one even as the vice chancellor sought ways to lower the total either through different depreciation factors, prior land sales to the UA and separating the land from the buildings.

“I think that it is a good appraisal,” Ezell wrote on July 17 of this year. “Apparently, there has been a lot of improvements made to the youth center properties so the overall building values less depreciation look about right to me.”

Ezell went on: “If we are not going to close for a couple years, the value should also increase during that time so $60 million might be a good price. If we can find a use for most of the property even if some of the buildings were razed … it would still be an attractive purchase.”

What is most curious is the way the UA has put the onus on the Fayetteville school district to name a price.

The usual real estate negotiation is initiated when a buyer makes an offer based on the listed price, which in the case of FHS is well known. Making offers and “cold-calling” is how the university has made many of its purchases since 2001.

Asking Fayetteville to make the UA an offer puts the district in an awkward position given it won’t ask for less than the appraised value and doesn’t know what kind of offer the UA would accept.

“There’s pretty strong evidence [the UA is] interested in land acquisition,” New said. “As a potential seller we take that into consideration as an opportunity for the university to be proactive in approaching us.

“We’ve established a range for the worth of the property. There’s no mystery out there. Two entities don’t go out and do appraisals unless there is a pretty good sense the two public entities want to develop a plan for acquisition or sale.”

With the knowledge the UA isn’t prepared to pay retail price for FHS, speculating on what the district could get makes consideration of possibilities for a new site impossible and effectively takes the option out of the school board’s hands.

Conflicting Voices

As usual in Fayetteville, economic leaders and city officials are split.

The City Council voted 6-1 in July to approve a resolution that recommends FHS stay at its current site.

Bill Ramsey, president of the Fayetteville Chamber of Commerce, said his board supports a new high school at a new site as the most practical alternative not only from a funding standpoint but as a means to attract residents. By 2008-09, Bentonville, Rogers and Springdale will have modern high schools to lure newcomers.

“We’re not competitive [in facilities] and it’s starting to show,” Ramsey said. “Sometimes we don’t look ahead. We want to keep it the way it is today. But part of looking down the road is remaining competitive.”

The school board voted 4-3 in March to add the ninth grade to FHS and board president Steve Percival was adamant at a Sept. 27 meeting that the ninth grade issue would not be revisited.

New doesn’t believe adding 600 to 700 students is feasible economically at the current site. Removing classroom space for the ninth grade in addition to the gymnasium space required for its programs would alleviate a tremendous amount of cost.

Parry said Build Smart, which advocates scenarios of staggered construction of two new facilities at the current site estimated at $65 or $77 million, believes it can convince voters to approve a millage increase of 5 mills to 7 mills.

New said his research indicates the public balks at millage increases greater than 5, but Parry counters that Fayetteville is not like other cities.

“Fayetteville contains a big proportion of natural ‘yes’ millage voters,” Parry said. “It’s an education town. That’s why our history for decades has been to approve millage increases that have been asked of us.

“Five to seven isn’t impossible. It has to be a project that people support and will get excited about.”

But even a town with a tax-and-spend reputation like Fayetteville could be reaching its limits. Voters have been socked with heavy tax increases in recent years to fund a $186 million sewer project that is way behind schedule and over budget and a $66 million bond issue to fund road projects.

And no one has a good answer for what the district will do when it opens a new high school with 2,700 students in a facility designed for 3,000.

Plans for a second high school would have to begin almost immediately and would require yet another tax increase to pay for twice the current operating costs on top of more construction.

After more than a year of talk, it’s clear New and the school board are losing patience with the extended process of planning the future of FHS. And now they are ready to move on without the UA as a partner to plan a mutually beneficial transition tied to the sale of the campus.

“We’re not going to characterize the university’s opportunity as opportunity lost,” New said. “But … we have to do what’s best for us and they have to do what’s best for them.”