One thing you’re looking for in an elected leader is steadiness and the ability to differentiate between a bump in the road and a cliff. If it’s a cliff, maybe you risk steering the car into the ditch to avoid it. If it’s a bump in the road, you’ve just wrecked the car for no good reason. In a complicated world, it’s easy to alarm the public and undermine valuable institutions through careless rhetoric. This is true even where the rhetoric is well-intentioned. Intemperate claims are all the more tempting in the middle of a political campaign or in the quest for clicks and eyeballs.
Should we panic?
Like a Lannister, West Side always pays its debts.
Which leads me, as all things do these days, to the West Lafayette School Board campaign. Claims are being made that West Side is drowning in debt. Its finances are precarious. Every student owes $40,000! We’ve lost $50 million because the school has no financial controls! The more extreme claims are not from candidates themselves, but rather social media reactions from people who have been spooked by less inflammatory but still overheated campaign rhetoric. We have debt to be sure. We built a new elementary school, renovated another elementary school, constructed a science wing, constructed a performing arts center, replaced a failing pool in a way that opened up space in the high school, and constructed a new aquatic center. Turns out those aren’t free. But we aren’t drowning. We’re strong swimmers (I just mentioned the aquatic center).
Overview
The short version is that in the first half of the 2010s, West Side was getting close to retiring bonds for construction from building we did in the 90s. The school developed a priority list of building projects it wanted to complete. Back in 2016, the school corporation’s debt service tax rate of $0.5375 per $100 of assessed value (are you asleep yet) could sustain a debt burden of about $50 million. The old debt was about to be retired, the school corporation had building needs, and the school wanted to do as much as it could while maintaining a steady tax rate. In the years since 2016, West Lafayette’s assessed value has gone up so that the school corporation is able to assume more than $50 million debt without raising the tax rate. Ultimately, the school borrowed quite a bit more than $50 million, kept the tax rate steady, and was able to get deeper into its priority list. The candidates trying to knock out the incumbents are looking to make hay out of the school spending more than $50 million — which is fair game — but they’re doing it by steadfastly ignoring the tax rate and intimating that the school is on the precipice. Not incidentally, this is the same argument made unsuccessfully during the 2020 campaign. (I wrote a blog post addressing many of those issues* as part of my own 2020 campaign — which was also unsuccessful, I’m sad to say.) Back then, as I recall, they were saying that the school was going to run out of money in 2022. The school’s municipal building corporation — something standard in Indiana municipal finance — was characterized as a “shell corporation” which tells you that generating heat was at least as important as generating light with that campaign rhetoric.
In 2016, the Capital Improvement Program had three related but independent variables: Project list, tax rate, and overall price.
I served on the school board for a year or so filling out someone else’s term in 2015-2016 and was part of the vote in 2016 that resulted in the issuance of about $47 million in bonds. Minutes from October 2016, reflect the priority list, the $50 million, and the $0.5375 tax rate. Quote from those minutes:
If bids come in over $50 million, then the administration will set priorities based upon the following criteria:
1) New elementary school at Burtsfield
2) Additional classrooms, internal systems’ improvements (HVAC, plumbing, etc.), media center/cafeteria improvements at Cumberland & Jr/Sr HS (includes Jim Guy Wing)
3) Aquatic center – Jr/Sr HS; external components at Cumberland
4) Performing arts center – Jr/Sr HS; Early Childhood/Kdg. Center – old HH site
5) Straley Field (athletic improvements)
The administration believes that in the coming years WLCSC’s A/V will dramatically increase. So the same debt service tax rate that now generates just under $50 million will generate additional revenue in 2018 without increasing the debt service tax rate. If this holds true, additional bonding can occur without increasing the school district’s tax rate.
(Emphasis added). Given the actual construction prices for these projects, I don’t think getting through that entire list was realistically on the table for $50 million. My sense is that, at the time, the folks involved thought we’d be able to get further than we did. But, for example, I don’t think anyone was seriously talking about being able to improve Straley Field back then or being able to build a new early childhood center at Happy Hollow without funding sources other than that original round of debt. There may have been hope that we could get some of the high school renovations done through a combination of lower construction costs and private donations. For my own part, I recall having the sense at the time that I’d be inclined to skip the aquatic center if construction prices forced us to choose. Then I lost the 2016 election and that became someone else’s decision. Also, as it turned out, getting rid of the old pool was part of the plan to open up more academic space, so ultimately the decision was not as simple as “pool or no pool.”
After 2016, the assessed value in the school district grew, allowing the same tax rate to sustain a higher overall price and allowing the school to accomplish more on its project list.
In any case, part of the discussion getting lost in the current election rhetoric is that, even according to the October 2016 minutes, the calculation was that the tax rate would support a debt burden of $50 million but also, the school anticipated that assessed valuation would go up and support additional debt without raising the rate. Since 2016, the school has, in fact, issued additional debt supported on the $0.5375 debt service rate and, with the additional money, the school worked its way down the priority list. It also bears mentioning that decisions made in 2015 and 2016 are not cast in stone. In the intervening years, we’ve had new elections, new board members, new challenges, and new decisions. Schools, like any other organization, adjust and adapt.There’s nothing inherently wrong about deciding that maintaining the tax rate and getting further down the priority list was more important than sticking to a price point that wouldn’t provide the schools with the facilities they need.
According to a Winter 2021 update from the school, the amount of debt ultimately issued was $83 million. Bonds were issued in 2017 ($47 million), 2018 ($15 million), 2019 ($15 million), and 2020 ($7.5 million). According to that same Winter 2021 update, the new elementary school (grades 4-6) came in at $29 million, renovations to our K-3 facility came in at $15 million, the Aquatic Center and Cafeteria came in at $12 million, James R. Guy Academic Wing (our new STEM area at the high school) came in at $13 million, the Bob Kelly Performing Arts Center came in at $8 million, and stair tower/second floor classrooms at $1 million. That’s $84.5 million in bonds and $78 million in construction. I think there is some bond money left over and there may be other renovations I have missed.
Growth in West Lafayette and Tippecanoe County is strong. The increased assessed value and a steady tax rate are adequate to support West Side’s bond payments.
The school’s September 2022 fiscal plan, reflects that revenues from the existing debt service tax rate will continue to meet bond obligations.The take aways: we spent more than $50 million, the tax rate has remained steady, we are financially stable, and we have good facilities for our students. And let’s not minimize that last point. We got something for our money. Adequate facilities are important to education and to the community. The candidates criticizing the expenditures were doing so at a candidate forum held in a room built with that money.
Predicting the future is fraught, but growth in West Lafayette and Tippecanoe County is strong. All indications are that assessed value will increase in our school district — in part because people want to move here because we have good schools with good facilities — and that rate will generate more revenue than the bond obligations require. Meanwhile, the existing bonds were obtained at favorable rates and, while in recent years, construction costs have escalated, it’s anyone’s guess whether they will decrease any time soon. In other words, the time to act on the improvements that West Side needed was in the past few years. Waiting likely would have made the process more expensive.
Debt Service revenue is not available to pay teachers or fund other operational costs.
The way the tax caps work in Indiana, spending less and reducing the school’s debt service tax rate below $0.5375 probably wouldn’t reduce taxes for most people, at least not on residential property with a 1% cap. (Landlords and owners of more expensive homes may have a beef, however.) For residents with less expensive homes, reducing the school’s debt service rate would mainly just mean that more of the money under the 1% cap would go to the other taxing units in the school district (e.g. city, county, library.)
Finally, the commentariat makes the predictable suggestion that we could spend more on teachers or other operational costs if only we had not wasted so much money on facilities. That’s not how these funding sources work. The education fund and the debt service fund revenues come from different sources, so money not spent from the debt service fund could not be spent on teachers or other operational costs.
That’s my take on the situation anyway. I took the hint from my last run and am not on the ballot, so you don’t even have to vote for me!
But man, I truly wish I could .
Thanks for the explanation, Doug!
Doug, as always well said (or written). As you say debt construction funds cannot be used for teacher salaries. The current school board has done a great job of protecting taxpayers by keeping the tax rate level. And one other thing, for every bond sold there were two public hearings. Not one of the board candidates who are complaining about debt ever attended a hearing. Lastly, one cannot fairly use the debt divided by students to come up with a fair comparison between school districts. A new elementary school will cost around $30 million regardless if it’s built in TSC or WLCSC. Because of enrollment, TSC will always have lower debt per student than WLCSC. So a better way to determine debt per student is by a more complicated calculation that would include assessed valuation increases.
Thanks Rocky! The public can be excused for getting turned around on numbers surrounding public finance. It’s pretty opaque stuff. But we want elected leaders who will tread with caution when discussing these numbers — because it’s so easy to get things wrong. Probably an aside — but I was always so happy when you got Larry DeBoer to look at these kinds of things for the school and explain them to the public.
Useful and detailed explanation. It deserves wide readership even though it is technical. It seems to me that experienced Board Members (incumbents running again) deserve continued support. Any new candidates need to be more responsible in their claims and more willing to admit that their current level of understanding of school finance may not be fully informed. They should state how they have reached their own conclusions and recommendations to the voters.
Doug, I read your old post from 2020. You wrote about your personal property tax statement “the debt service tax rate of .$1.2762 per $100 of assessed valuation. In 2019, the certified rate attributable to debt service was 0.5375, the rate attributable to operations was $0.3687, and the rate attributable to the referendum was 0.37.”
It seems that the .537 seems high just intuitively. This amount, sort of for buildings, is almost as much as the amount for people and programs. Maybe that’s fine. Does this .5375 account for repayment of principal on the bonds or is it just really interest? Wait, I guess it would have to be payment down on the bonds wouldn’t it?
Well anyway thanks for your post.
A lot of the money for operations at the school doesn’t come from property taxes at all. Instead it comes from the State (mostly via sales taxes.) So that money wouldn’t be reflected on your property tax bill.
And, yes, the debt service tax rate goes toward principal and interest.
If you want to check out the latest reporting of the school finances and county finances go to the Indiana Report Builder https://gateway.ifionline.org/report_builder/ – The below is the Nond and Budget Info Then there is the Employee Compensation by Unit – School Extra-Curricular Accounts and more —-
Debt Management –
Bond/Lease
Total Debt by Unit
Debt Comparison
Debt Affirmation Log
Active Budget Forms
Line-Item Budget Estimate
Based on data collected on Budget Form 1. Report displays itemized budget estimates for each fund and department as advertised and adopted by the local unit.
Estimate of Miscellaneous Revenue
Based on data collected on Budget Form 2. Report displays estimates of all revenues except property taxes by fund as submitted by the local unit. Revenue estimates used in calculating certified budgets are available after DLGF budget review.
Current Year Financial Worksheet
The Current Year Financial Worksheet is used by local units to complete Budget Form 4-B. This report contains data on actual expenditures from the first half of the current year, June 30th cash balances, certified or adopted budgets from the current year, additional appropriations, and temporary loans by fund as submitted by the local unit.
Debt Worksheet
The Debt Worksheet is used by local units to calculate a property tax levy to fund outstanding debt obligations.
Analysis and Supplemental Reports
Certified Budget, Levy, Rate
Cash Balance as a Percent of Budget
Compares June’s cash on hand to budget across geographies.
Certified Budget Comparison
Compare Units’ Total Budgeted Spending/Expected Revenue
View budgeted spending and expected revenue per capita.
Budget Submission Log
Budget Summary
Based on data collected on Budget Form 4-A. Report displays budget estimates by fund, department, and expenditure category as advertised and adopted by the local unit.
Budget Summary by Selected Fund and Department
Based on data collected on Budget Form 4-A. Report displays budget estimates by fund, department, and expenditure category as advertised and adopted by the local unit.
Notice to Taxpayers of Budget Estimates and Tax Levies
Budget Form 3 is the advertisement published in local newspapers concerning the budgets and levies which are to be raised in the ensuing year. In addition, this form notifies taxpayers of the dates and locations of the public hearing and budget adoption meeting.
Yes, it is true that legal notices for public hearings must appear in the newspaper. Rocky Killion, in his comment above, mentioned that each bond issuance (4 in all between 2017-2020) had two public hearings, which advertised in the legal notices section of the Lafayette Leader. How many of you read the legal notices in the Lafayette Leader on a regular basis? Di you even know there was a newspaper called the Lafayette Leader? At the onset of the RDP projects, well-publicized public events were held in which the public was told that the projects would cost $50 million. Later, when the decision was made to nearly double the cost, things were much quieter. The major issue here is whether the public has the right to know what the school is doing with taxpayer money and how much the Board, as the public’s representatives, should do to keep their constituents in the loop.
The Leader was a big money suck before it went out of business. As far as I could tell, it existed more or less solely for the purpose of taking in legal advertisement money. IC 5-3-1-4 requires a political subdivision to advertise in two papers if there are two papers in the County. (In the case of sale of bonds, there has to be a notice published in those two papers on two separate occasions.)
So, I presume that the notices were also put in the Journal and Courier. But, you’ll get no argument from me that public was poring over the Leader. I know people who were actively happy when the Leader stopped publication and they were no longer statutorily required to publish there.
Here’ a hypothetical question: Supposed that notices of hearings on bond issuance were hand-delivered to each taxpaying household in WL, followed by telephone calls to each household a few days before the hearings as a reminder. What’s your best guess as to how many more people would have attended those meetings had such notices been given than the number that actually attended them? (How many people actually attended them? I don’t know. I didn’t, and I wouldn’t have even if I’d been given additional notices.)
There would have been more people attending and aware. How many more people and would that attendance have been very meaningful? I don’t know. In 2015 and 2016, the school engaged in a lot of community outreach to get public buy-in. They had informational seminars talking about the need for the improvements and the financing. There were a reasonable number of people who attended those meetings. But, as a percentage of residents or taxpayers in the district? Probably miniscule if that’s the relevant scale. It’s tough to say what’s meaningful input in this context.
Some political subdivisions seem to take out bonds all the time and nobody knows and nobody cares. For other political subdivisions, it’s a major undertaking with a lot of agonizing and soul searching. TSC and LSC issued bonds a number of times during the same time period. I don’t recall hearing about much community outreach for those financial undertakings. Maybe they happened and I wasn’t paying attention or they weren’t publicized in a way I would have heard about. Or maybe that’s just how things are financed, and citizens in those districts don’t spend much time thinking about it.
These are the 3 bonds on W.Lafayette is using property tax to pay off. The interest rates are extremely low – There are 7 common school loans which don’t even total 1 million dollars combined. This is all the long term debt the school corp is currently is carrying.on their balance sheet. The current property tax will easily cover the payments.
Purpose of Debt: Pay for land acquisition, renovations of school buildings, and principal and interest on 2016 BAN’s.
Total Project Cost: $56,210,029.25 – between 4 to 5 % Paid off 2036 Issued 2017
Purpose of Debt: Renovations and improvements to West Lafayette Jr./Sr. High School
Total Project Cost: $17,345,442.76 – 5% Paid off in 2037 issued 2018
Purpose of Debt: Renovation & improvements to High School, including construction of Educational Wing & Arts Center Paid off in 2039 Issued 2020
Total Project Cost: $7,628,073.67 – between 2.38% – 5%
Thanks Phil. You wouldn’t happen to know what kind of interest rates are common on municipal bonds these days would you? My assumption would be that interest rates have gone up generally, so bonds for schools have gotten more expensive. But I don’t actually know that.
For the current project for F.C. – (2) Assumes the 2023 FM Bonds sell in April 2023 and close in May 2023.
(3) Assumes estimated interest rates of 6.00%. The actual interest rates will depend on the market conditions at the time of the bond
sale and may vary materially from the rates assumed in this analysis.
The Fed will up interest rates 3/4 percent in November and I am guessing 3/4 in December. I’ would say rates will be easily over 7 percent by the end of December.
Thanks Phil!
I closed bonds in April 2022 at a TIC of 3.32% with bonds ranging from 2.45% to 3.31%. It was sold with premium so the TIC was higher.
Even with 150 basis point increase I would be surprised to see Muni rates hit 7% this year. The highest Muni rates have been in the last 25 years is 6% in 1999/2000.
After the September .75 increase the 10 year MMD (Municipal Market Data) yield was 2.74% and AAA rated bonds (basically any municipal borrowing in Indiana will be AAA rated) was 2.28% to 3.5% depending on length.
Not gonna lie. I had to google “TIC.”
Thanks Paddy!
Fascinating