High School District 155 Set to Borrow $9.8 Million Without a Referendum

On Crystal Lake High School District 155’s agenda this week is a resolution to borrow $9.8 million:

“Resolution providing for the issue of not to exceed $9,800,000 General Obligation Limited Refunding School Bonds of the District for the purpose of refunding certain outstanding bonds of the District, providing for the levy of a direct annual tax to pay the principal and interest on said bonds, authorizing the execution of an escrow agreement in connection therewith, and authorizing the sale of said bonds to the purchaser thereof.”

I asked former Cary Grade School Board President Scott Coffey to explain what was up. Here is his reply:

It looks like they are planning to refinance their 2014 Bonds.

The current outstanding principal of the 2014 Bonds is $9,110,000.

They are planning to issue up to $9,800,000 in new bonds.

The document claims they expect to reduce the interest expense by approximately $1,000,000.

However, there are no documents in the board packet which demonstrates the estimated debt service schedule by year which would identify the savings.

Additionally, it appears that they are increasing the amount of the outstanding principal by $690,000 to $9,800,000.

My guess is that the incremental proceeds will be used, at least in part, to pay for the debt issuance expense (i.e. underwriter fees, bond consul, credit rating fees, etc.). 

Note, the district also does not disclose in the board packet those fees expected to be incurred in this transaction. 

Also, the incremental $690,000 in new debt is far in excess of what is needed to cover those issuance expenses. 

This excess provides additional cash for the district to spend on services. 

Its practical effect is to reduce the amount of savings that would otherwise be recognized by the taxpayers in the form of lower future debt service levies.

The meeting will be held November 17th at 7:30.

“Members of the public wishing to view this meeting may do so by going to the District website Board or click D155 Board youtube channel. to view live streams,” the agenda says.


High School District 155 Set to Borrow $9.8 Million Without a Referendum — 23 Comments

  1. This is where the money is made.

    My guess is that the incremental proceeds will be used, at least in part, to pay for the debt issuance expense (i.e. underwriter fees, bond consul, credit rating fees, etc.).

  2. Fees will constitute at amount equal to probably about 1% to 1.5% of par, or $100,000 to $150,000.

    Where does the rest go?

    I’ll explain.

    The bonds are being “advance refunded”.

    That means they can’t call them today, so they have to set up an escrow account to fund payment through the call date, probably in 20204.

    The escrow account will be invested in Treasury bonds with much lower interest rates on the 2014 bonds.

    So they need to borrow more in order to have enough to pay the bonds off when the bonds are called.

    Yes, they’ll probably still save money (although I’m with Coffey that the numbers they’re using to make the decision should be disclosed now), because the real savings occurs between the call date (I’m assuming 2024 because most municipal term bonds are callable only after ten years) and through the maturity date of the 2014 bond issue.

    Complicated with words.

    Much easier to see with numbers.

  3. Who needs a check from this and where’s my cut?

  4. As always “not an income problem but rather a spending problem “.

  5. Okay, I looked up the 2014 bonds.

    They’re callable at par on June 30, 2022.

    I figured out how to structure an escrow account to pay debt service on those bonds through the call date.

    Because interest rates on treasury securities are so low, it will take close to $9.8 million to fund the escrow account.

    At current tax-exempt rates, I project a total savings of somewhere north of $2 million with no extension of the maturity dates.

    In short, no referendum is needed because debt service will actually decline despite the increase in the par amount of bonds outstanding.

  6. What we don’t know is whether the $1 million in savings is a gross or a net number.

    So, is it $1 million in savings even after the spike in the principal of $690,000 or is it $1 million in gross interest expense savings offset by $690,000 of additional principal netting only $310,000 of levy reduction spread over 13 years?

    And if it is a net number, would it not be better to only borrow an amount equal to the current principal amount of $9.110 million, thus saving the taxpayers an additional $690,000 for a total of $1,690,000 in savings?

    Of course, they could use the the $1 million they plan to use to abate the debt service levy for next year and call some of the 2014 series bonds and refinance only $8.110 million.

    This strategy is more impactful to taxpayers on a long term basis as it is a more efficient use of $1 million.

    D-26 used this strategy twice and is known as “refunding for less”.

    It saves the taxpayer more money than a one-time abatement.

  7. And this entire discussion is proof that our real problems started when we decided to use debt to pay for the entire government forever.

    All it does is give unlimited money and ways to confuse people to the politicians so they can blow it on patronage jobs and keeping themselves elected.

  8. Neal, there are problems with governments borrowing money, but this discussion isn’t proof of that.

    In Illinois, most governments borrow money for capital projects.

    Would you suggest that a $10 million capital project that will last for 30 years should be paid for it the year it’s built by raising taxes in that one year by $10 million?

    Or would you suggest that the cost should be spread out over the life of the project so it’s paid for by all the taxpayers who benefit from it?

    Now, that doesn’t mean all capital projects are justified, or that all are built at reasonable costs.

    But borrowing money to pay for a long-term project is no more unreasonable than borrowing money to buy a house.

  9. I guess my main problem with it is it tends to encourage being irresponsible.

    Yes you probably need to borrow when you need a new building, but when it’s the government they generally go overboard.

    Companies also borrow for this purpose but act more responsible because they must actually turn a profit.

    I’ll kinda go another way with this.

    It’s a great argument for charter schools.

    The taxpayers don’t take on the debts associated with capital projects and there is a fixed cost for spending on education.

    Schools improve because they have to or no one sends the kids to them.

    Win win for everyone but the government run schools but who needs them if the kids are getting a better education.

  10. Neal, I will not disagree.

    Non-home rule units of governments in Illinois (school districts; towns under 25,000) generally can’t issue much debt without a referendum.

    The CL Park District has used a loophole in the law to issue millions without a referendum.

    Home rule units (cities over 25,000) can issue as much debt as they like without a referendum.

  11. There is one taxpayer protection from overreaching public debt: statutory maximum ratio of public indebtedness as a percentage of EAV.

    With school districts that ratio is 13.8%. (Equivalent to 4.6% of assessed property value in the district).

    Those empowered to tax may find loopholes to limitations on indebtedness.

    One loophole is the way that deferred interest debt is considered: it is not treated as debt when maximum debt ratio is calculated.

    (One example is Woodstock D200 capital appreciation bonds coming due shortly.

    A $14 million debt on the books was counted toward maximum debt ratio, the $50 million of interest accruing over <20years was not counted at all. This enabled school district debt to exceed 20% of EAV while statutory maximum ratio is 13.8%.)

    Another trending loophole to evade taxpayer protection from excessive public debt regards failed school building debt referendums.

    If taxpayers vote no to a big new debt referendum, the school board may sign "lease" agreements with private contractors who build new school buildings and lease them back under onerous terms.

    The terms of the lease are more costly to taxpayers, and accomplish a workaround of the failed referendum representing the will of the people (which was to not incur the expense of new buildings).

  12. Another alternative to large capital projects is emulating what some large corporations do.

    That is, choose to get out of the ownership of real estate altogether and instead lease facilities.

    Whether this is a financially viable consideration is uncertain, but I’ve never heard it even discussed.

    Aside from potential budgetary benefits, I can envision “more bang for the buck” in the competition to provide those spaces, and likely more innovative learning spaces at a lower per-pupil cost.

    This pandemic has provided an opportunity to think differently about everything, and I hope our elected board members are doing just that.

    It’s an idea that even the teacher’s union might get behind.

  13. Closing Central HS is long overdue.

    Projections for increased student count are trend way down.

    Send half to South and half to PR.

    CL doesn’t need 3 High School’s.

    Show me plans to build out the area north of Route 176 and west of Route 14.

    Nada, show me plans to develop the old Hines Lumber Parcel at Main and Cl ave, Nada.

  14. “This pandemic has provided an opportunity to think differently about everything”

    I couldn’t agree more.

    We should be seriously looking at charter schools.

    We are spending all this tax payer money on an inferior product.

    With a system like that we would eliminate all the insider bs and provide our children with a superior education.

  15. I’m curious.

    What makes charter schools better than public schools? 😁

  16. They give parents a choice of schools.

    If a school is performing poorly parents can and will choose to send their kids elsewhere.

    Choice encourages the school to do better to attract more students, and therefore make more profit.

    Public schools based on where you live are bad in a lot of the same ways a monopoly is, no consumer choice equals an inferior experience.

  17. yeah will I hope all these parents are ready to pay it back cause where NOT!!!

    should be closing these brick and morter buildings $ suck…

    let them work from home.

  18. They aren’t.

    ‘Since we want to use this as an opportunity to think differently as someone else said, implementing such a program was my suggestion.

  19. To be clear: my point was that the lease-to-own scheme trend by Illinois school boards was another example of loopholes to evade taxpayer protection laws.

    After 2 or three failed referenda asking for millions from taxpayers to build a new school, D200 western suburbs employed this expensive scheme to subvert taxpayer will..

Leave a Reply

Your email address will not be published. Required fields are marked *