IL Legislation to close “Lease” to avoid referendum loophole

Wheaton’s state Rep, Amy Grant has submitted a bill, HB2145 and Palatine Rep. Thomas Morrison has submitted a bill, HB2738 (virtually the same), to close the “loophole” that district 200 tried to use to avoid the referendum for a new Jefferson pre-school building. Other districts have already done this, and we fear it may be catching on like wildfire. If school boards can build new facilities without referendum by signing a lease-to-own agreement, then issue debt service extension base (DSEB) Bonds, without a referendum to shore up their general revenues (raising future taxes to pay then back), we are in real trouble. Using the magic word “Lease should not void the clear intent of the original law that requires a referendum for new construction.

I submitted written comments (similar to this post) with my witness slip in support of HB2145.

What Happened in Wheato-Warrenvulle CUSD 200

D200 has 1 pre-school, 13 elementary schools, 4 middle schools, 2 high schools and a couple other buildings. D200 serves 13,000 students.

  • Jefferson pre-school was built as an elementary school. It sat empty for years and was opened as D200’s pre-school when pre-K for special needs children was mandated (1998)
  • The district has talked about renovating or replacing it since at least 2007.
  • In 2013 the voters rejected a $17.6 million referendum to build a new Jefferson that was too big and too expensive.
  • 2017 D200 ran a referendum to borrow $132 million to Maintain & improve all but one school including a new Jefferson pre-school – it failed.
  • 2017 D200 planned to swamp popular, developed park land for vacant school land, so the new Jefferson pre-school could be built as an addition to a middle school without referendum. The park district refused to swap after public push back.  There were Yard signs and social media post, resulting in crowds showing up to park district and school board meetings.
  • Finally, in 2018 the board decided to build the new Jefferson pre-school on the existing site without a referendum by calling it a “lease.” The plan was to pay for it by selling lease certificates, and paying them back over 20 years out of existing tax revenues.
  • I, Jan Shaw filed a law suit, asking the court to require a referendum as required by law before the district could build a new building.
  • At the next board meeting, the board tabled the two action items regarding Jefferson: One to issue millions in new debt called “lease certificates” and one to approve construction contracts.
  • 8/20/2018, a special meeting was held at which they voted to terminate the lease agreement and to place the building of a new Jefferson Early Childhood Center on the November ballot.

After two referendums were rejected by taxpayers, CUSD 200 planned to borrow and build a new Jefferson pre-school without taxpayer approval.  However, due to a lawsuit, they decided to try a third referendum. The question on the ballot was:

Shall the Board of Education of Wheaton Warrenville Community Unit School District Number 200, DuPage County, Illinois, build and equip a new early childhood center without levying a separate, special property tax to finance the costs thereof?

It did not include the cost or how they planned to pay for it.  It passed.

Key Board meeting notes – background on build via lease-to-purchase to avoid referendum

CUSD  200 school Board meeting on 1/17/2018, PMA Rep (Bob Lewis) listed districts that used these – all in the last year or two.  (about 1:58:00 in the video https://youtu.be/wC9gRv3tTVM?t=1h56m35s )

  • Sunset Ridge
  • Huckster (?)
  • Airoway schools (?)

I have not been able to find the last two, but did find Sunset Ridge.

Sunset Ridge

Located in the Village of Northfield, District 29 consists of two schools, serves 500 students and feed into New Trier High School

Sunset Ridge apparent timeline

  • Fall 2015:  district newsletter = a “capital lease” option to finance =
  • Oct 2015: LTE Demolish Or Renovate “As word of these plans leaked out, some Sunset Ridge alumni have objected and a campaign was launched for the historic preservation of Northfield’s oldest building.
  • Oct 13,2015: board authorized lease certificate agreement
  • Nov 10,2015: Board discussed the wording of the contract agreement with Chapman & Cutler
  • Fall 2015:  $9.7 million lease certificates issued
  • Feb 9, 2016: PMA presentation
  • Feb 2016: issued $15.3 million of lease certificates
  • April 12, 2016: reported that they had a ground breaking ceremony
  • July- Aug 2017 old build demolished
  • August 2017: temporary occupancy certificate for the new building

While it is true that, the statutory language is clear that school districts can purchase a building that is being leased.  What we contend is not legal is what Sunset Ridge did and CUSD 200 is planning:

  • signing a lease for a building yet to be built to district specifications without referendum
  • Having the entire purchase price of the building paid in 20 years via the lease with the district taking title for $1.00 at the end of the lease period without referendum.
  • Having all money raised to pay for the construction via “lease Certificates” that look/act just like bonds to avoid a referendum. 

The only difference they claim is they cannot raise taxes to do it.  But, we all know money is fungible.  If they spend all reserves on a new building, they can borrow more via working cash bonds (without taxpayer approval) or cry poor and leverage the taxpayers for needs of other buildings.

If the interpreted of the existing law was to allow a lease-to-own for a building not yet even built, it would make the first section of 105 ILCS 5/10-22.36 moot & therefore that is not a correct interpretation.

Lisle D202

After I posted about what D200 was doing, Lisle Watchdog posted a comment on one of my posts:

All the same players – Unicom Arc, PMA, Pepper Construction – and the exact same scheme is unfolding in Lisle CUSD 202. $39 Million new PK-5 School. It was acknowledged by District as a clever scheme to avoid a ballot referendum. They are quite proud of themselves for circumventing a referendum that they knew would fail.

 Lisle is a small district south-east of Wheaton.

The PMA no-referendum scheme was presented to the board in 2016.  https://v3.boardbook.org/Public/PublicMeetingMaterials.aspx?ak=1001640&mk=50213286 click agenda, click “PMA Financial Options 09 14 2016.pdf”

From the PMA presentation:

Funding for the project would consist of $21 million of fund balance and $18 million from bond proceeds

Lisle’s plan was to issue working cash bonds without referendum in 2016.   Lisle has been over taxing for years, building their reserve fund.  They broke ground in June 2018 and plan to finish in August 2019.

From twitter:

lisle revenue v expenditure

On April 2, 2019 they will have a referendum question their ballot:

Shall the amount extended for educational purposes by the Lisle Community Unit School District 202 be reduced from $19,062,127.15 to $17,155,915.00  for the 2018 levy year, but in no event lower than the amount required to maintain an adequacy target of 110%?

Also in Lisle (reason for HB1627 by Allen Skillcorn)
In an email from Lisle watchdog:

In Lisle 202, they were able to hoard money for a new school by overtaxing in Operations & Maintenance, and Education Funds and then they did Fund transfers to Capital … to the tune of $52 Million. One such transfer was $11 Million out of the Education Fund. Most of this was raised by overtaxing in O & M – they faced 5 years of Tax Objection lawsuits and had to give back 5% of the Over-taxation money to objectors. The District kept the rest. They thought it a clever scheme. School board rewarded the finance guy with a 10% salary increase right after the tax lawsuit settlement payment.  

Lincolnwood, D74

2011-2012: The district planned to replace Lincoln Hall without a referendum.  Residents pushed back and a group filed a law suit.  The district agreed to run a referendum, the group tabled the law suit.  After the referendum failed, the group of citizens and the district agreed to dismiss the suit.  New members were elected to the board in the next election, and they have remolded instead.

 

Oak Park

In Sep 2018 I received an email from a resident of Oak Park:

You don’t know us, but we are living in Oak Park and have been working with a group to head off an effort by our high school district 200 to put in an over sized pool. We succeeded in defeating a referendum for a $47 million pool in …From the comments at last Tuesday’s school board meeting, it became apparent that they intend to fund this with debt certificates and not go to referendum…”

The latest email from her says

By the way, it looks like our high school district has given up on tearing down the field house and building an Olympic pool on the taxpayer dime.  They are now trying to raise private money!”

This brings up the point that the law needs to define what construction can be done without a referendum, what needs one?  Maintenance, emergency repairs and small modifications/additions paid without borrowing or taxing more should be allowed without a referendum.  New buildings, major modifications/additions or anything that requires new borrowing/taxing must require a referendum.   The question is how do we define the line between minor and major modifications/additions?

I also submitted a file with my suggested changes  janShaw HB2145 law chage recomendation

One thought on “IL Legislation to close “Lease” to avoid referendum loophole

  1. Neither bill moved today. I suggested to Amy that she amend the bill and try again. Currently, the bill says all construction requires a referendum. Even, I would not pass that. Small projects such as maintenance, life/safety, and small (less than 72,000 square feet) additions should not require a referendum. However, the law needs to be reworded so that districts cannot mis-interpret it. ALL NEW buildings require a referendum – that must be made clear. Doing that should get less push back. Not changing the law, means those who are sued will run a referendum. Others can ignore the clear intent of the law. I was told that since others do it, and no judge ever ruled, it must be OK to build without referendum simply by calling it leased.

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