Oswego D308 wrangles with growing bond payments in budget battle
By Jenette STurges firstname.lastname@example.org August 16, 2013 12:08PM
Updated: August 22, 2013 4:46PM
Oswego 308 School District administrators will be on the hunt for more efficiencies after the school board approved a draft budget.
On Wednesday, the Oswego 308 School Board posted the draft budget for the 2013-14 fiscal year. The budget includes roughly $9.6 million in increased operating expenditures, of which roughly $7.6 million will pay for the salaries and benefits of new teachers and staff, new hires approved by the school board in the past several months to accomplish the task of educating an additional 400 new students in the district this year.
Under the proposed budget plan, the local property tax levy would increase only to collect on new construction in the district. The total levy on existing homes to pay for the district’s operating expenses, such as teachers, books, buses, would remain the same as last year.
The approved proposed budget was a middle ground between three choices presented before the board on Wednesday. Another option would have raised taxed by 2.3 percent, and a third option would have kept the levy flat, failing to capture dollars from new construction.
The middle-ground budget approved Wednesday night would likely mean roughly $1.3 million less in revenue from local taxes than the most generous budget scenario proposed Wednesday, and, with cuts from around the district, would result in an annual operating budget with a $220,000 surplus. To make the budget work, administrators will need to find roughly $1.3 million in cuts and efficiencies that can be made throughout the budget.
However, those cuts and the decision not to raise the levy for operations does not mean that Oswego 308 homeowners won’t see an increase in their tax bills.
The debt problem
That’s because operating expenses, the budget items that include paying teachers and keeping the lights on in the schools discussed Wednesday, are only one piece of the school finance puzzle. The other piece, and one that is growing ever more expensive for the Oswego 308 School District, is the cost of its debt.
Several years ago, when new families were flocking to the district and the economy was strong, the district issued several bonds to pay for the construction of more schools. When they did, they signed onto an “aggressive” payment plan, in an attempt to get the bonds paid off quickly.
Fast forward several years, and those substantial payments — $34 million this year, and escalating to $41 million in 2020 — are still due, though home prices have fallen and growth has slowed, making it likely that even with significant cuts to educational programs and classroom dollars, property taxes will continue to rise.
“The (repayment) structure, it was done many years ago, and I understand how we structured it. We wanted to aggressively pay off that debt, put it behind us,” Associate Superintendent Paul O’Malley said. “However, the (assessed values of homes) dropped so much that it had such a negative impact that we can no longer sustain the structure that we have today, because you will see increase and increase and increase that will continue as the wall goes up.”
O’Malley said that even if the board were to approve an operating budget that keeps the levy flat, taxes would rise anyway to pay for the bonds.
“If you were to approve, let’s just say, version C, homeowners will have an increase because the bonds will go up,” he said, referring to the version of the proposed budget with a flat operating budget.
This year, the school district will repay about $34 million in debt. Without refinancing, they’ll be required to pay back more each year, with a peak payment of $41 million in 2020, according to O’Malley.
That leaves the school board with two options — cut, perhaps steeply, into classroom spending, or refinance the bonds, stretching out the term of the loan, which could cost the district more in the long-term, but alleviate the pressure on taxpayers.
“What I think we need to do is ask the question ‘Are we going to cut our way to lower taxes or restructure our bond debt, or a combination of the two?” Wendt said. “I don’t know any other way.”
On Wednesday, Superintendent Matthew Wendt proposed the board look again at reissuing the bonds, likening them to a home refinance that would let the district “stay in the house” and continue to adequately fund education programming. “We are going to be challenged to educate the children in this district at a level that the majority of people want their children to graduate from, with higher ACT scores, better mathematics scores, better literacy scores,” Wendt said. “We’re going to be challenged if we continue to make that higher home payment.”
But some board members disagreed. Board member Brent Lightfoot called any potential refinance “kicking the can down the road.”
O’Malley promised the board he would return at the next meeting, scheduled for Aug. 26, with information about what next year’s tax increases might look like, given the proposed operating budget, passed 7-0 Wednesday, plus the tax increase needed to cover debt payments. The draft budget, meanwhile, is on file for public viewing for 60 days at Oswego East High School. The budget hearing is scheduled for Sept. 23.