Champaign school official: Alternate funding ideas are flawed
CHAMPAIGN — When Champaign school board member Jamar Brown addressed the issue of working cash bonds during a forum and a school board meeting recently, he emphasized that he wanted to hear alternative ideas for funding sources.
The working cash bond issue has been controversial in recent months: School board members say bonds are needed to pay for $14.5 million in improvements, including geothermal systems and new lighting at Franklin and Jefferson middle schools, a new transportation center and wireless Internet in all buildings.
About 2,300 citizens signed petitions asking the school board to put the issue to a vote, but organizers needed to collect 5,900 signatures.
"I understand people want it put on a referendum, but if there's an option to not raise taxes, I think that would be even better," Brown said. "If there are ways to do that, I want to explore those options first."
One alternative came up at the board meeting Monday, and two more were mentioned at the independent forum Brown hosted last week.
Champaign school district Chief Operating Officer Gene Logas said he's looked into these possibilities, including the idea presented Monday by Craig Walker and Frank Paul of Blaylock Robert Van, to use property tax increases when local tax increment financing districts expire to pay the principal and interest after selling alternate revenue bonds.
TIF districts freeze property taxes for taxing bodies like a school district in a certain area, and any increase in property values is reinvested in properties within the district. They typically expire after 23 years, at which time the taxing bodies will see an increase in property tax revenue.
TIFs within the Champaign school district will expire in 2016, 2022 and 2025, Walker told the school board in the email that also included the proposal. Paul said the district could sell the bonds now to use for improvements.
Walker said in that email that he estimated doing so would cost the school district about $500,000 a year between 2016 and 2022, then $800,000 a year from 2023 to 2026 and then about $1 million a year from 2027 on until the end of the 25-year bond period. That amount increases as TIF districts expire, Walker said, and is conservative in assuming no growth in the assessed values of the properties within local TIF districts. The plan would raise about $11 million in cash for projects and would use 75 percent of the money expected from the expired districts.
Logas said he estimates the cost of such a plan at $1 million a year, because the district needs more than $14 million. He said he would expect to pay about $6 million in interest, if it were over a 20-year period.
He expects that the cost of interest would be similar with working cash bonds, but it will be paid for with an increase in property taxes, which are more reliable than increases that may or may not happen with property values in those TIF districts.
Plus, Logas said, there's no extra revenue source to pay off bonds until those TIFs expire, which means paying more interest overall, because the school district wouldn't have the money to pay toward the principal.
Logas compared the Blaylock Robert Van money released from a tax increment financing district with having a similar cost as a "lease-purchase" (which is buying something and paying it off in increments without issuing bonds).
"We just don't have the operating money to make it work," Logas said.
He's also skeptical about the idea, Logas said, calling it "foolhardy," because the school district is concerned about funding and added requirements from the state that don't come with any more money for implementation, Logas said.
"In that environment, it's not a wise decision to use future operational dollars to pay debt service," Logas said. "We're going to need those additional operating dollars to pay for programs that are in place today."
He said he worries that diverting those operational dollars might mean a shortfall in the future that would cause the district to issue working cash bonds to meet payroll expenses.
Paul, a senior vice president with Blaylock Robert Van who works out of the Chicago office, said the proposal was made just to give the school district another option.
"The only thing that I can suggest is, the decision of whether or not to use revenues to the school district for capital expenditure or for operating expenditures is something the school board does every year" when it approves a budget, Paul said.
"All this is saying is that we would structure bond issue to take advantage of taxes that are already being levied," Paul said. "This is a way that they could issue bonds with no new tax increases. It's still the same taxes."
A couple other ideas came up last week when Brown hosted a forum at the Champaign Public Library.
One attendee wondered if the school district couldn't raise the percentage of the facilities sales tax that currently exists.
But state law limits the sales tax to 1 percent, which is what Champaign County school districts receive, Logas said.
Another attendee wondered if the school district could sell more bonds and repay them with future sales tax money.
Logas said it's possible to do so, but what the school district would pay in interest would far exceed the amount of money the sale of bonds would produce. For example, the school district could sell bonds to gain $5 million to pay for capital improvements. But by the time that money is paid back, it would cost the school district — and taxpayers — about $20 million.
"It's a little more palatable to issue long-term bonds when some of the bonds are being repaid each year," Logas said, adding that the Champaign school district repays principal and interest each year on the bonds it sold with facilities sales tax money.