August 4th, 2011
City council to consider another loan extension for Master’s School

Left to right: San Marcos City Council Members Jude Prather, Ryan Thomason, and San Marcos Mayor Daniel Guerrero during an Aug. 2 meeting. PHOTO by SEAN BATURA

by SEAN BATURA

Nearly four years ago, the Master’s School wanted to build a new campus on property recently annexed into the San Marcos city limits on Centerpoint Road. But the private, Christian school didn’t have the money to extend an eight-inch water line to the property nor for impact fees the city charges to compensate for future strain on existing infrastructure.

Calling the school “necessary to stimulate business and commercial activity within the city,” the San Marcos City Council voted in August 2008 to loan $345,000 for one year at three percent annual interest, money school officials say was primarily used for the water line and impact fees.

When the loan came due in August 2009, the school had not made any payments on the loan, and council members granted a two-year extension for repayment, to August 2011. Now that date is quickly approaching and the Master’s School is requesting another extension, saying it has donor pledges to nearly cover the remaining $276,000 balance but that it needs another five years to collect the money.

After discussing the loan in executive session on Tuesday, San Marcos council members held off granting the second loan extension, voting unanimously to postpone action on a proposal from the school to make annual payments of $34,500 — a tenth of the principal — on Aug. 14 every year through 2015. The remainder would be due in August 2016.

Council members said little publicly about the loan except that they want staff to re-negotiate the contract. Tim Kardosz, the school’s board of directors president, said he did not know what council members have in mind in terms of re-negotiation.

“We are working to set up a meeting with city staff to understand the next steps in the process,” Kardosz said.

Kardosz said the Master’s School is still pursuing long-term financing from private lenders so that the city can be paid off. In addition, the school held a fundraiser in February and received pledges totaling $265,000 over the next five years.

“We felt real blessed because the fundraiser raised way more than we had raised in the past, and we had dedicated all that money to paying off the loan,” Kardosz said. “We hoped that a private lender could come and bridge that gap between when the donations were scheduled to flow and when the obligation to the city was set to expire on Aug. 14, but we haven’t had any success in the private lending market as of yet, although we’re still pursuing potential private lenders and in conversation with some.”

The extension agreement proposed by the Master’s School in a letter to San Marcos City Manager Jim Nuse on July 22 was virtually identical to the one on the council’s Tuesday agenda, except that it stipulated payments additional to those already mentioned. According to the agreement proposed on July 22, “additional payments” would be due by Dec. 31 of 2011, 2012, 2013, 2014, and 2015, “to the full extent that money pledged as of the date of this Note is paid,” in the language of the proposed agreement.

According to the agreement before council members on Tuesday, the school “may” make additional payments towards the principal beyond those already mentioned, and no deadlines were specified.

The city offered the $345,000 loan through a state law that allows city’s to develop programs “to promote state or local economic development and to stimulate business and commercial activity,” in the language of Chapter 380 of the Texas Local Government Code. The loan’s enabling resolution, approved by the City Council, declares loan “a public necessity.” According to the Chapter 380 agreement between the city and the Master’s School, the school proposed to expand its school and education programs at the new Centerpoint Road location, and to add seven to 10 new full-time employees with an estimated payroll of $120,000.

According to the 380 agreement, the loan was for capital investments for new construction of about 13,000 square feet of buildings and improvements for the new campus. The 380 agreement stipulated full payment of the principal within 12 months, either in multiple installments or in one lump sum, plus three percent interest per year.

The loan’s enabling resolution states the loan was “necessary to stimulate business and commercial activity within the city” because the school increases the diversity of educational opportunities in the city, thereby enhancing the city’s ability to retain existing residents and employers and attract new ones. According to the resolution, other benefits include “new opportunity for other retail and service businesses that serve the needs of schools and their employees.”

The Master’s School had failed to make any payments on the principal until more than two months after the first maturity date of Aug, 14, 2009, even after the city sent multiple demand letters requesting full repayment.

In a letter he sent to the city on Oct. 9, 2009, then-Master’s School President David McCall apologized and cited confusion by the school’s board members about the loan’s due date, “the current economic climate,” and “significant unexpected cost overruns” associated with the building of the new campus.

According to the Master’s School’s website, it offers Kindergarten through Eighth Grade classes, and, “an education that is both classical and Christian.”

“It is classical in that it draws on the heritage of western civilization and culture,” states the Master’s School’s website. “It is Christian in that it recognizes the Bible as the final authority in matters of life and thought.”

The Master’s School’s annual tuition rates are $5,000 for Kindergarten, $5,000 for grades 1-2, $5,300 for grades 3-6, and $5,600 for grades 7-8. According to Master’s School Board Vice President John McGlothlin, there were 98 students enrolled in the 2009-10 school year, 110 enrolled in 2010-11, and 120 enrolled in 2011-12.

The procedure for admission to the Master’s School involves the submission of a signed Statement of Faith, which is available here.

Kardosz said students’ parents sign the statement of faith, which he said constitutes their acknowledgment of the ideas upon which the school is founded. Kardosz said the statement expresses the ideas to which faculty and staff are committed.

“It’s not an ‘I believe’ statement that the signer would have to believe in,” Kardosz said. “We have families and students at the school of different faiths, that are comfortable enough with our beliefs being incorporated into their children’s curriculum.”

Master’s School loan balance sheet, courtesy of the City of San Marcos:

CORRECTION: Due to an editing error, this article originally contradicted itself about when the Master’s School made its first payment on the loan principle. The school paid the city the first principal payment of $34,500 11 weeks and three days after the original maturity date of Aug. 14, 2009.