[Open letter to] CUSD 200 Board members,
Congratulations, Wheaton-Warrenville District 200 voted to build a new Jefferson preschool without raising taxes.
D200 said it could fund the project from operating revenue. So tell me, why is the district still planning to use 20-year “lease certificates,” which will cost the taxpayers $6.2M more than necessary? These tax dollars should be paying for educating students and maintaining our buildings rather than funneling them to consultants and out of state lenders.
Estimated Cost of building a new Jefferson
Based on estimates in Legat Architects 7/10/2018 presentation & the construction bids from August 2018:
- $15M Construction Cost
- $1.3M Architectural & Engineering (at least $600,000 already paid)
- $1.3M Post Construction
- $17.6M Total cost ($17M remaining)
In 2018 the district had planned to use a 20-year “lease” to avoid the referendum. We assume using the same debt structure would result in the same interest payments of $6.2M. (See attached debt schedule from an Oct 2018 FOIA : 20yr Lease Certs CM Est Debt Service Schedule.shaw.10.19.2018.2). The interest may actually be higher as interest rates are trending up.
Details – “Lease Certificates” & their risk:
At the 1/17/2018 board meeting, Bob Lewis of PMA presented the lease Certificate agreement including potential risk to using a “lease” for funding. He starts speaking at 1:57:00 youtu.be/wC9gRv3tTVM?t=1h56m35s.
From page 6 of his presentation:
Potential risks of lease financing
- The payments are paid from operating funds which could squeeze other operating expenditures over time.
- A change in the law prevents the District from taking ownership of the building once construction is completed and the lease is paid off
- If a private entity is utilized as the lessor, there is a chance the property will be subject to property taxes
- The lessor enters into bankruptcy
All of these risks still exist.
Furthermore, the “lease” you originally signed gave the building title to a third party for the duration of the “lease” despite the district having 100% of the risk, responsibility and authority for the building. Why would you do this again when there is nothing to be gained by it? As a reminder, I have attached section V or the law suit. Documented there, but not challenged in a court, a “lease” requires that a true lease exist; the “lease” as signed in March 2018 was a disguised bond sale. complaint sec V not true lease
Proposal to Fund from operating budget
The following fund-out-of-operating-budget-&-cash-reserves method is being proposed to avoid the $6.2M in interest payments. You can plan to use Tax Anticipation Warrants* (TAW) to cover the cash flow shortage in April and May which is expected before the first installment of property taxes arrive in June. (See attached historical cash flow for previous use of TAWs : Historical D200 fund balance).
Currently D200 has excess funds in cash reserves that can be utilized for Jefferson. By cutting other spending, or using TAWs, D200 can find a few million more for a total of $17M to complete Jefferson funding in FY2019 & FY2020. If you break ground in April or May 2019,… and plan to remove the existing building, pave the parking lot and landscape in the summer of 2020 after school lets out the building could open in August 2020 and be paid for with operating fund + reserves in two fiscal years with NO long term debt – a saving of $6.2M over the current “lease” proposal.
Note: The 2018, 5-year forecast (attached : forecast5 10.19.1) includes the plan to pay for Jefferson via lease certificates. Might I suggest that it be updated to include any known changes to revenue (e.g. new Amazon facility) or expenses, and then what-if Jefferson is paid for out of the operating budget and reserves as proposed above.
The original timeline had 8/16/2018 Start Construction, and 8/21/2019 Occupancy. So, my suggestion of waiting until spring of 2019 for ground-breaking and finishing by August 2020, in time for the next school year should be quite doable. Rushing to complete it any sooner (January of 2020 was discussed at the November Board meeting) will add cost due to working in winter weather, logistical issues of moving equipment and classroom supplies over Christmas break, and the chaos of students being dropped-off and picked-up at a new building without the new parking lot and access roads being complete.
[linked here & inline when referenced]
- Debt schedule from an October 2018 FOIA : 20yr Lease Certs CM Est Debt Service Schedule.shaw.10.19.2018.2
- Section V of the law suit : complaint sec V not true lease
- Historical D200 end-of-month fund balances 2007 to 2012 (graph with notes of borrowing and repayment) : Historical D200 fund balance
- Latest forecast-5 summary from another October 2018 FIOA : forecast5 10.19.1
* Tax Anticipation Warrant (TAW) – a short-term debt security issued by a municipal government to finance current operations or an immediate project that will be repaid with future taxes. District 200 used TAWs in 2009, 2010 and 2011.