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Indiana Legislature

April 26, 2011

Piece of state budget would let schools refinance debt

Amendment good for cash-strapped districts, bad for taxpayers, some say

INDIANAPOLIS — With just days to go to finish their work, some Indiana legislators are trying to give some relief to school districts that have lost millions of dollars because of property tax caps.

An amendment tagged on last week to the state’s two-year, $28 billion budget bill would let those schools refinance long-term debt to free up cash that could go toward non-salary items such as replacing school buses or upgrading classroom technology.

The amendment filed by Republican Sen. Luke Kenley, the influential Senate appropriations chairman from Noblesville, would apply to 30 school districts that have lost a combined $103 million in property tax revenues this year.

“It’s for the schools hardest hit,” Kenley said. “They need some help.”

Whether that help comes remains to be seen. Negotiations over the budget bill could go on “hour by hour” up until the final day of the legislature on Friday, said Rep. Jeff Espich, Kenley’s budget counterpart in the House.

The idea of letting those hard-hit schools spread out their debt payments over a longer period of time has Espich’s conditional support.

He said he might sign off on the amendment with two conditions: That more school districts could qualify and local voters would have some veto power, like a referendum, over such a plan.

“If we're going to let schools bend the rules, there needs to be some public scrutiny involved,” said Espich, a Uniondale Republican who chairs the House Committee on Ways and Means.

The rules to which Espich refers involve the property tax caps that were put into law two years ago and put into the Indiana constitution last November by voters.

They limit the amount of property tax revenues that local units of government can collect to pay off their expenses. Those rules also require school districts to pay off their debts first and, if needed, take the money from other sources.

Spreading out debt payments by an additional 10 years could be good for financially strapped schools but not necessarily seen as good for taxpayers, said Bruce Stahly, superintendent of the Goshen Community Schools, which would qualify under Kenley's amendment.

That’s because while it can lower the monthly payments to free up more cash, it also means paying more money in interest payments.  “I’m not sure taxpayers will want that,” Stahley said.

Timing is also critical, said Michael Schafer, the chief financial officer at Zionsville Community Schools. His district, among the fastest growing in the state, incurred significant debt for construction projects, but has seen less money coming in to pay for those capital projects because of the property tax caps.

Schafer said a voter referendum, which could delay refinancing decisions, might cause a school district to lose an opportunity to refinance when rates are favorable. “It’s going to be very school specific as to benefits,” Schafer said.

The idea of increasing the number of school districts that could qualify, with Espich’s caveat that local voters would have to weigh in on it may be picking up steam, said Rep. Wes Culver, a Republican from Goshen. “Some communities may want to bite the bullet and pay off the debt and others may want to lower payments and prolong the debt,” Culver said. “Each schools situation is unique.”

The push for Kenley’s amendment is related to how schools get their money. It’s a complex fiscal puzzle with many pieces, but in essence, schools get money from the state’s tax revenues – including sales, income, and corportate – taxes to pay for operating expenses, including salaries and wages. They get money for other some expenses — including transportation costs, capital projects and school bus replacements — from property taxes that by law are now are capped at a certain percentage.

Both sources of funding have become tighter for most school districts in the last two years but some are hurting more than others.

Defining the “hurt” is subjective, though.

Kenley’s amendment would apply to schools that have lost a certain percentage of their property tax revenues because of the property tax cap, also known as the “circuit breaker.”

Kenley set that threshold of loss at 30 percent of a school’s non-debt levy. Only 30 school districts out of 292 districts in the state would qualify.

That includes urban school districts such as Gary and Anderson, which have seen a decline in both students and tax base. But it also includes suburban districts such as Zionsville, which has seen an increase in students but has a tax base of mostly homeowners, who pay the lowest tax rate under the property tax caps.

Dennis Costerison, executive director of the Indiana Association of School Business Officials, said his members would like to see the threshold to qualify for debt refinancing pushed downward to include more schools.

“Right now, it’s the only mechanism that will help school districts with big ‘circuit breaker’ losses,” said Costerison.

He hopes the amendment will stay in the budget bill, but like other observers of the legislature in its last week, he’s not counting on it. “Anything,” said Costerison, “can happen over the next few days.”

Maureen Hayden is statehouse bureau chief for The Tribune-Star. She can be reached at maureen.hayden@indianamediagroup.com. 

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