District 200 – Lease Certificates vs Debt Certificates for a new Early Childhood Center

The School District wants to issue Lease Certificates to build a new school and hand over the ownership of the building that will reside on school district property to investors for 20 years.

Why?

  • The school district was looking for a vehicle to circumvent a referendum on the ballot. First, since school additions do not require a referendum, the school district proposed building an extension on the Monroe Middle School by replacing a park district field and playground with a school building and parking lot.  The school district proposed using Debt Certificates to finance the project and would pay them out of the operating budget.  The citizens rallied against transforming their park into school complex and this was no longer a viable option.
  • The school district then decided to build a new Early Childhood Center just to the south of the existing building and would fund it through Lease Certificates. They had been led to believe that if they leased a building the school code requiring a referendum for a new stand-alone building would not apply.  The Lease Certificates looked like the school district was issuing bonds and was using obscure section of the school code to justify it.  A taxpayer sued the school district claiming the school code cited to fund the building was not proper.  The project came to grinding halt and the lawsuit was settled with referendum allowing the taxpayers to decide whether they wanted a new Early Childhood Center or not.
  • The referendum passed in November 2018. The school district is still planning to finance the new building by issuing Lease Certificates.

 

Take a look at some background information from on-line.

Below is a presentation by Tammie Beckwith Schallmo of PMA at September 13, 2017 school board meeting discussing the use of Debt Certificates. https://esbpublic.cusd200.org/Attachments/fe46ed93-5a87-4209-99c4-f9dd028f177b.pdf

pma9_17_2017p1

pma9_17_2017p2

pma9_17_2017p3

 

Below is concise statement Leases, Installment Contracts and Debt Certificates the law firm of Chapman and Cutler LLP.  It can be found on https://www.chapman.com/practices-Leases-Installment-Contracts-Debt-Certificates.html

chapman cutler leade debt

 

Below is concise statement Leases, Installment Contracts and Debt Certificates the law firm of IceMiller.  https://www.icemiller.com/MediaLibraries/icemiller.com/IceMiller/PDFs/publications/Financing-Options-Using-Bonds-for-Illinois-School-Districts.pdf    (see page 7)

ice miller lease debt

After reviewing these statements, Debt Certificates look like the correct financial tool to finance the building of the new Early Childhood Center.

 

Furthermore, the school district is looking to encumber the budget and finances for the next 20 years.  Why not 10 years and save $3.3 million.  The original discussions focused on borrowing for 10 years and over time, morphed into 20 years.  The district claims the can’t afford to additional $650k per year after giving agreeing to give teachers and administrators a few million in pay raises that is above inflation.

 

If the District borrows for 10 years instead of 20 years, the interest savings would be $3.3 million (borrowing $13,675,000 at 4% based on the document below).

Years    Total Interest       Extra Interest      Yearly Payments
10         $ 2,917,000               $ 0                      $ 1,659,000
15         $ 4,532,000           $ 1,615,000              $ 1,214,000
20         $ 6,213,000           $ 3,296,000              $   994,000

20yr lease

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