District taking 'conservative' debt approach
CHAMPAIGN — Nine-figure debt totals are eye-catching, but Champaign school district Superintendant Judy Wiegand said she's comfortable with the numbers.
She admits, though, that they have implications for the district's facilities plan that looks 20 years into the future. Central and Centennial high schools made the cut; rebuilding or renovation existing elementary and middle schools — most notably Dr. Howard Elementary School — are off the table until at least 2025, as far as Wiegand is concerned.
Hear from Unit 4 board member John Bambenek Thursday at 7:40 on WDWS.
In November, voters will be presented with a referendum asking whether the school district should sell $149 million in bonds to finance a new Central on Interstate Drive and renovate Centennial. The school district would levy additional property taxes to repay the bonds.
If the referendum were to pass, the district would be saddled with about $169 million in debt that counts toward its $267 million legal borrowing limit — leaving it with $98 million in additional borrowing capacity to address major capital or funding needs.
That could, in theory, nearly cover the other major projects in the district's facilities plans over the next 20 years. That plan includes a $30 million rebuild of the 104-year-old Dr. Howard in central Champaign; $53 million to rebuild Edison, Jefferson and Franklin middle schools; and a $14.5 million renovation and expansion of South Side Elementary.
But don't expect to see any of that happen anytime soon.
"It was my recommendation to the board to not go for that full amount that we could possibly go for because it certainly limits and ties the hand of future boards," Wiegand said.
The district is bound by state law, which allows it to borrow 13.8 percent of its equalized assessed value — in the Champaign school district's case, that value is $1.9 billion right now, for the legal borrowing limit of $267 million.
Wiegand wants to maintain access to some of that. She calls it a "conservative" approach to stave off unforeseen emergencies.
"There always needs to be a cushion," she said.
Part of the reason is that the district might need that cushion in an unpredictable legislative environment as the state works through pension reform. If state legislators ever saddled local school districts with a bigger portion of their employees' retirement benefits, the district might need access to that funding.
The flip side of that decision is that some other school facilities will not be upgraded for at least the next 10 years.
Wiegand said not moving forward with a rebuild of Dr. Howard was a tough decision.
"It's really hard," Wiegand said. "It's an old building."
Much of that decision was based on community feedback. The "overwhelming feedback" was that the district should prioritize the high school needs, school officials say.
And while future school boards or a future superintendent could change course, it's not likely to get done before 2025 under Wiegand.
"For me, I'm recommending that we wait until 2025 when we can issue bonds using the 1 percent (sales tax) again," she said.
As for the sheer size of the numbers (between all of the district's principal debt plus interest, it could end up paying roughly $397 million between now and 2038 if the referendum passes), Wiegand does not think it will affect the district's bond rating.
The school district has maintained a AA bond credit rating — the third-highest it can achieve — which affects what kind of interest rates it can get on its loans and, consequently, how much major capital projects end up costing in the long run.
It's a lot like a personal credit rating, much of which is based on how much debt an individual is carrying and that person's ability to repay. The higher the bond rating, the more confidence investors have in the district to repay those loans — thus, lower interest rates.
Wiegand said school district revenues have shown to be very stable and she's not concerned that the ratings agencies will become more skeptical of the district's ability to pay off its loans.
"No, I'm not" concerned, Wiegand said. "I believe that we have shown to be very fiscally responsible."
A debt breakdown
If voters say "yes" this November to a new Central High School and a renovated Centennial, then the school district would be looking at an estimated $397 million in debt payments between now and 2038. Matt Foster, the school district's executive director of business services, provided The News-Gazette with the numbers. A look:
The principal amount on debt the school district is already carrying. This breaks down further into the district's "general obligation debt" ($19.8 million) and "alternate revenue bonds" ($86.2 million), but the bottom line is that it all needs to be repaid.
The interest the district will pay on top of that principal amount if it stays on its schedule to pay off the loans by 2036.
The principal amount the district is proposing to add in its November referendum. That would go toward building a new Central High on Interstate Drive in northern Champaign (about $98 million) and renovating Centennial (about $52 million).
The interest school officials are estimating they would owe on top of that $149 million between now and 2038.
This is the legal limit for the school district's principal debt (not including interest). State law allows districts to borrow up to 13.8 percent of their equalized assessed valuation.
This is also where the different classifications of debt come back into play. General obligation debt counts against the debt limit, but alternate revenue bonds do not. So you can add the $19.8 million to the $149 million and find that, if school officials proceed with their facilities plans, they'd still be able to borrow another $98 million or so.
The amount the school district can legally borrow will grow over the years as the district's taxable value continues to grow and it pays down its principal debt.
Those numbers are pretty significant when you look at them over the next 24 years, but they'll be financed through different means. The district will use a 1 percent sales tax to pay back some of the existing debt, and if the November referendum passes, property tax increases would finance the high school debt. But overall, here's what the school district could be looking at in terms of annual debt payments during that period:
How does that compare?
Next to other central Illinois school districts, Champaign already ranks near the top in terms of debt per student. But another $149 million would separate it from the pack. Here's data from the most recent financial and enrollment reports (as of last school year) the districts submitted to the Illinois State Board of Education (* — if referendum passes):
|District||2013-2014 enrollment||Debt||Debt per student||EAV||Debt per $33,333 EAV||Debt allowed|
Source: Illinois State Board of Education