School District is $130m in the hole. Is this normal? Or should I bail out now?

[barrelomonkeys]

DH, 4 kids (10,7,3,1) & I live in a college town in the midwest in a small school district (2400 students).  It's election season, and we have an unprecedented 15 candidates running for 4 school board seats, mostly due to pent up frustration that I won't get into here. 

Well, in all the run-up to the election, I stumbled across one candidate's analysis of our district's debt service.  All the building projects over the last 5 years have put the district $85 million in the hole (in principal) with almost $45 million in interest over the next 18 years.  It looks like between state funding and property taxes that we'll run out of rainy day funds/cash on hand in 2022. Our state caps property taxes, so I'm not sure of any magical ways to procure funds.

One current incumbent denies this and says we'll be fine, and says that the only way our state allows schools to build projects is through bonds/debt service.  He says essentially that if a district doesn't have debt that it's neglecting its facilities. 

It's just mind-boggling to me. Our district takes in ~$33 million per year, so our debt to income ratio is enormous (debt per student is ~$50,000), especially when compared to surrounding districts.  I honestly don't understand all the accounting--so many different categories and rules for funding, etc.

So my question is--is this kind of debt in a school district normal? Is anyone out there more savvy on this?  Should I move out before they start axing programs, or do other school districts wiggle out of this kind of situation?  The current administration assures everyone that all is well. 

I'm tempted to move to one of the county districts that is much larger, and supposedly less academic (the academic pressure in this current district is intense).  A lot less hubris it seems as well, but any advice on that kind of tradeoff from more experienced parents would also be appreciated. 

[dandarc]

So over the course of 18 years the district needs to come up with $130 million. About $7.2 million per year if we're coming up with this money linearly.

When you say your district takes in $33 million per year - is that everything, or just the property taxes?

Bonds are how the school buildings get built. You might need $50 million to build a new school, but that building will be in use for 50-100 years. You can't really cash-flow that unless it is a really large school district with many buildings such that one or more is being built or retrofitted every year. Municipal bonds tend to have good rates.

I took a look at the school district I went to and the one next door - each has over $200 million in outstanding bonds. These are larger districts than you're describing - 8800 at one and 12700 at the other, but there is also more debt outstanding at each one.

What district are you talking about so we can look at the actual financials?

[dandarc]

Where'd you get that 18 years number? Seems an odd time-frame to be analyzing.

[Paul der Krake]

Lots of local governments are overly reliant on debt. Is yours one of them? Impossible to say without looking at the specifics.

If you're not comfortable sharing your location here, you can show up to a local meeting and ask pointed questions. It shouldn't be hard to phrase things in such a way that it gets other parents' attention.

[seattlecyclone]

A school building tends to last 50-100 years. A school district with a few dozen schools should therefore be able to stagger their building projects and cashflow them without resorting to debt. The big district in Seattle, where I live, does just this: they have a special tax levy dedicated to capital projects and I think they basically spend the money as it comes in. Every year there's a different elementary school or two that's up for renovation or replacement. They even have a building in my neighborhood that's designated for the staff and students at these schools to use when their normal building is out of commission for a year.

A district of the size you mention doesn't have that luxury. If you have maybe 2-5 schools, you're not going to have any big building projects at all in most years, while every once in a while you need to spend a lot all in one year. The only options are to either charge a ton of property tax in the year you need to rebuild your high school (good luck getting the voters to approve that), or spread the cost out over a number of years by issuing bonds. The existence of bonds that exceed the annual tax collection is not an automatic indicator of mismanagement. In many cases debt is the best tool available to raise money needed all at once for a facility that will be used over many years.

[six-car-habit]

 Do you feel that the real estate taxes you pay on your home [ the schools and education portion]  is excessive ?

 My state has a cap on how fast RE taxes can go up.  But there is Not a cap on " voter approved " bonds or levies. Whether for School / fire dept, etc.

 Not knowing what exactly was built/ refurbished for 85 Million makes it hard to know if the projects are a good value. Were there frequently cost overruns on these projects due to bad planning/ accounting ?  And that is just a measure of the value of the "improvement" to the real estate - it says nothing about better learning environments, more diverse opportunities, more sports fields or music auditoriums , etc.

  I'd guess that having 4 children going thru the school system is a number that is above average. If that is true, you are getting a bargain compared to your neighbors with one child and a house appraised at similar value to yours....

[Cranky]

Your kids are going to be fine in those schools because you live in a small college town where parents care about academics.

Everything else is just gravy.

[barrelomonkeys]

A school building tends to last 50-100 years. A school district with a few dozen schools should therefore be able to stagger their building projects and cashflow them without resorting to debt. The big district in Seattle, where I live, does just this: they have a special tax levy dedicated to capital projects and I think they basically spend the money as it comes in. Every year there's a different elementary school or two that's up for renovation or replacement. They even have a building in my neighborhood that's designated for the staff and students at these schools to use when their normal building is out of commission for a year.

A district of the size you mention doesn't have that luxury. If you have maybe 2-5 schools, you're not going to have any big building projects at all in most years, while every once in a while you need to spend a lot all in one year. The only options are to either charge a ton of property tax in the year you need to rebuild your high school (good luck getting the voters to approve that), or spread the cost out over a number of years by issuing bonds. The existence of bonds that exceed the annual tax collection is not an automatic indicator of mismanagement. In many cases debt is the best tool available to raise money needed all at once for a facility that will be used over many years.

I appreciate this insight.  Gosh, I would love if we could plan ahead like this rather than waste $40m on debt.  I think there were definitely needed projects (the middle school was definitely in disrepair), but I do think they got a little overly ambitious, for sure.

Do you feel that the real estate taxes you pay on your home [ the schools and education portion]  is excessive ?

 My state has a cap on how fast RE taxes can go up.  But there is Not a cap on " voter approved " bonds or levies. Whether for School / fire dept, etc.

My very, very modest house is appraised by the city almost 50% higher than the purchase price 5 years ago.  So yes and no. 

Interestingly, we approved a referedum 5 years ago that adds 5 million/year to the budget, but it was supposed to be for "arts and music."  I just learned that it all went to debt service from one of the incumbents (so I feel like it was a bait and switch), but then another one says that they aren't touching that money for debt service.   I have no idea whom to believe here.

What district are you talking about so we can look at the actual financials?

I should have posted this first off, but here's the debt compared to surrounding districts (from one of the candidates:

https://www.angelajanes.org/deep-in-debt

https://www.angelajanes.org/the-debt-gamble

And another candidate's projection:

https://daciamumford.com/2020/10/13/debt-payments/

This is an incumbent's reply with quite a few more specifics:

https://marleyforwlschoolboard.com/wlcsc-debt-summary/?fbclid=IwAR3puZcXb3ZMer7PHGlWmE5sHveJtoo9bOjLRDBIKwIdmn4U2ibxGB9dps4

I thought I was pretty financially savvy, but I'm having a really hard time here.

[dandarc]

The incumbent's analysis rings true to me. The 1990's bonds recently paid off. They have a levy in place for capital projects that was previously paying that debt. They have a construction need. They borrowed such that the cash flow required is met by the existing levy. Also points out they are leasing one of the old buildings to the city. Notes the plan is only to draw cash balance by $200K per year.

Reads like smart management for a school district that is only doing major construction every 20-30 years.

If there is a complaint here, it is with policies that are messing with city's ability to manage their own tax revenue. You're not going to get away from that by simply sending your kids to a different school.

[dandarc]

And the challenger's analysis is comparing apples to oranges. Was this person out there praising the low debt level in 2012 when the 1990's issued bonds were nearing being paid off? I'd bet no.

[mozar]

Obviously I can't speak to the issues at your particular district but at least for candidate Angela Janes what she is doing is debt fear mongering.
Here's an article about it:

https://verdict.justia.com/2020/04/21/even-during-a-pandemic-fear-mongering-about-the-debt-has-predictably-reared-its-ignorant-head

I have a masters degree in accounting and I took a class on state and local budgets. It's very different from personal finance. I'm curious what the actual issues in your district are.
I moved to a place where I am more ideologically aligned with state spending so I can understand your conundrum.

[seattlecyclone]

Right. These things are cyclical. The debt principal will be low during the part of the cycle right before your building project, and high right afterward.

[dandarc]

Boils down to exactly what SeattleCyclone said - West Lafayette only has a few buildings, they were aging and they've done pretty major construction. The bonds in question were all issued since 2017, so the balances are high. Pretty typical for a small school district that has multi-decade timeframes between big construction projects.

So I'd say OP knows now who not to vote for in the upcoming election. Angela Janes who knows how to lie with numbers to stoke fear.

[YttriumNitrate]

DH, 4 kids (10,7,3,1) & I live in a college town in the midwest in a small school district (2400 students).  It's election season, and we have an unprecedented 15 candidates running for 4 school board seats, mostly due to pent up frustration that I won't get into here ... Our state caps property taxes, so I'm not sure of any magical ways to procure funds.

Based on the last referendum it looks W.L.S.C. can basically raise property taxes just about anytime they want. Something like 94% voted in favor of raising property taxes, so I wouldn't be surprised the ask next time is more than the 37 cents back in 2017.