At last week’s meeting of the Community Finance Committee, the financial advisor to Oak Park and River Forest High School, it laid out five funding scenarios for the approximately $100 million Project 2 capital spending proposal at OPRF that includes a new swimming pool. Four of those scenarios included a referendum to issue building bonds ranging from a low of $15.9 million to a high of $74 million. All of the scenarios presume spending $105 million on Project 2 because alternate upgrades, which the school board may not approve, raise the cost of Project 2 to $104.4 million.
The only option without a referendum had the lowest projected cost to taxpayers though that estimate is based on a questionable assumption that one funding mechanism, debt certificates, carry no additional cost to taxpayers. The scenarios were presented by Elizabeth Hennessy, a managing director of public finance for Raymond James Financial and an advisor to a host of school districts in the Chicago area.
The one non-referendum scenario called for paying for Project 2 using $46 million in current reserve funds, issuing $44 million in 20 year debt certificates, a type of bond that that doesn’t require a referendum because it is paid back out of the operating revenues the school gets from its annual tax levy, and $15 million in what is known as debt service extension bonds, a type of bond that can be issued without a referendum. If enough voters sign a petition, they can force a referendum on issuing debt service extension bonds through a procedure known as a backdoor referendum. According to the report that Hennessy presented to the committee this non-referendum scenario would cost the owner of a home worth $500,000 an additional $109 in property taxes annually for the next 20 years.
According to Hennessey’s presentation the $74 million referendum option would be the most expensive to taxpayers costing the owner of a home worth $500,000 an additional $339 in property taxes annually for the next 20 years. This option would use $31 million in reserves and maintain a fund balance of 50 percent of annual operating expenditures. Another option without debt certificates would be to use $46 million in reserves, which would bring the cash reserves down to about 35 percent of the annual operating expenditures and asking voters to issue $59 million in building bonds. It is projected that this option would cost the owner of a $500,000 home $270 more annually in property taxes for the next 20 years.
Since debt certificates are paid out of the annual operating tax levy Hennessy’s presentation listed the tax impact of debt certificates on a homeowner as zero. Project 2 critic Monica Sheehan objected to this in her public comment at the start of the meeting.
“The chart does not list the tax impact for the proposed debt certificates which would require the school board to levy higher taxes than necessary annually to repay them,” Sheehan said.
In a telephone interview with Wednesday Journal Hennessy said the $3.5 million annual cost to pay off debt certificates can be met from operating levies that the district is currently projecting.
“We’re using their existing financial projections and did not add additional levy to it. It’s affordable within their current projections,” Hennessy said. “But that’s a projection; there’s a lot of things that can change over time and that’s why we talked so much in the presentation about careful budgeting if you take on a debt certificate obligation.”
If the school board chooses one of the two scenarios without debt certificates, funding Project 2 with building bonds issued after passing a referendum and cash reserves, it could be possible for the district to reduce future operating tax levies by up to the $3.5 million annual cost of debt certificates which would save taxpayers money. That possible saving was not mentioned in the presentation.
Hennessy’s presentation does say that issuing debt certificates would require “careful budgeting” to ensure that they can be paid back out of operating funds.
Sheehan says the issue of whether to borrow money for Project 2 is an issue that should go to a referendum. She noted that the Lake Forest School District 115, also advised by Hennessy, is putting on the ballot this year a $105.7 million building bond referendum to pay for renovation and updates to Lake Forest High School.
Three of the five scenarios presented by Hennessy involve issuing debt certificates. Sheehan opposes all of them.
“Scenarios three, four and five are unacceptable,” Sheehan said. “They are undemocratic because they include borrowing tools designed to bypass voters for funding approval: non-referendum bonds and debt certificates.”
Brian Souders, a candidate for the OPRF school board in April’s election, also spoke during the public comment portion of the meeting and he, like Sheehan, called for any borrowing related to Project 2 to be put to voters in a referendum.
“I feel as if we need to do a referendum on this, full stop,” Souders said. “People have said this, and let’s be honest, one of the reasons this committee exists is because there’s a lack of trust between the community and D200.”
Souders said the reason the district is considering non-referendum funding alternatives is because officials fear that voters would reject Project 2 in a referendum.
“If you don’t think it’s a winner then you try to do an end around and force it on the people,” Souders said.
River Forest resident Laura Huseby had a different view. Huseby said that having a referendum would delay the project and thus raise costs. The earliest a referendum could be held is in 2024 because school officials didn’t decide on funding options in time to put a referendum, if they were so inclined to do so, on the ballot in this April’s school board and municipal election. Huseby, a resident of River Forest and the parent of a member of the OPRF boys swim team, said she trusts the school board to choose the best financing option.
“I support the Imagine Committee’s recommendations and the board of education’s right to make these facility decisions,” said Huseby in her public comment at the finance committee meeting. “Concerning financing Project 2 I encourage you as a committee to retain all financing options available so the board may decide the right path forward. The investment figured for Project 2 is large and has gotten frustratingly larger with delay. Embarking on this important project now is the only answer for our community. More delays pose more millions in costs.”
Two other options include a mixture of cash reserves, smaller referendums for building bonds, debt service extensions bonds, which are limited in amount, and debt certificates. A plan using $46 million from current reserves, $15 million in debt service extension bonds, $28.1 million in debt certificates paid back over 10 years, and $15.9 in building bonds issued after voters approve a referendum is projected to cost the hypothetical owner of a home worth $500,000 an additional $182 a year in property taxes. A different plan that includes $15,585,000 of debt certificates paid back over five years, nearly $21 million in debt service extension bonds, and $22.45 million in building bonds issued after voters approve a referendum is projected to cost that owner of a home worth $500,000 an additional $250 a year in property taxes.
Hennessy said interest rates on debt certificates are often no higher than the rates on building bonds for school districts that have strong financial ratings and only three to five basis points higher for lower rated school districts. She projected that bonds issued in a referendum would carry an interest rate of around 5 percent, a projection that includes a one percent cushion to account for interest rates which are currently rising.
The Community Finance Committee will now examine all the scenarios and make a recommendation to the school board.
“I would love to come up with a recommendation by the end of February,” said Steve Miller, the chairman of the finance committee.
The school board aims to choose a funding method for Project 2 before the end of the current school year and probably before new board members are seated in May.