Painful solutions to District 428 debt offered

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DeKalb property owners are facing significant increases in real estate taxes due to general obligation debt bond payments from the 2008 $110 million referendum that built the new high school, the Cortland elementary school and improvements to other schools in District 428.

According to a handout provided by Elizabeth Hennessey of William Blair & Company, a Chicago-based financial services firm that also brokers bonds, the owner of a $150,000 home in DeKalb paid an additional $339 for the referendum debt in 2014. Provided that home retains its value in 2020 the debt tax burden will rise to $792.

Options were presented at a meeting held in the Council Chambers room in the City of DeKalb municipal building. The meeting was for local business operators who were asked to RSVP to attend to hear about the options available to reduce the burden. Also attending the meeting were Mayor John Rey and aldermen Dave Jacobson (1st ward) and Dave Baker (6th ward). Hennessey also provides financial advice for the City of DeKalb.

The first option offered would refund bonds in 2018 and 2020. Issuers refund bond issues to reduce financing costs, eliminate covenants, and alter maturities. In this instance it is done to alter the maturities. The debt would be retired in 2036 instead of 2030. That $150,000 homeowner’s payments would “only” rise to $418 by 2026.

The next option is for refunding in 2018, 2020 and 2024. The debt would be stretched until 2040 but the debt payments would be more stabilized under $400 annually for the $150,000 property.

The first option of bond refunding would cost an additional $9 million in debt service. Option two would cost an additional $27 million in debt service.

The final solution offered by William Blair’s Elizabeth Hennessey was to go ahead and refund bonds in 2018 and 2020 but also add $5.7 million in annual revenue (for District 428) through a County School Facility Occupation Tax. If the required referendum passed District 428 would use $3.8 million of the $5.7 million for abating debt service on their property tax levy. The $150,000 homeowner would pay about the same as 2014 for the duration of the term ending 2030. So the tax relief is really only on additional increases subject to the accuracy of projections.

That would leave almost $2 million a year in revenue for additional capital projects and bonds for capital projects.

According to Hennessey’s handout a referendum shall not be required if the purchase, construction or building of a school building is paid from funds received from the County School Facility Occupation Tax law (55 ILCS 5/5-1006.7) or from proceeds of bonds secured by revenues obtained from that law.

That makes the county sales tax non-ending if any of the school districts in the county obligates the sales tax revenue for debt service.

Projections are an important key to any of the scenarios proposed by the options. Andrea Gorla, ‎Assistant Superintendent of Business and Finance, thinks District 428’s projections especially those of a demographer contracted in 2008 have been fairly accurate.

Those projections included the district experiencing $20 million in new construction EAV each year for the duration of the debt service. The district has not had a single such year since the referendum was passed.

Enrollment projections in terms of total number of students are close to the 2008 estimates. But the household income of the projected students from proposed and existing subdivions of new construction homeowners versus those of renters is signficantly higher.

The number of low income students in 428 has increased from 34.7% of enrollment in 2008 to 59% in 2015. Since 2000 median household income in DeKalb has risen 6% (to $37,277) compared to the state average incease of 21% ($56,210) in 2013.

According to statistics obtained through census and bureau of labor statistics reports by CityData of a total of 14,525 households in DeKalb 8,248 had household income under $40,000 (57%). Only 347 had household income between $150,000 and $200,000; and 190 households had incomes exceeding $200,000.

District 428 like all public school districts must educate whoever enrolls so the argument that DeKalb has a low median income because of NIU students has no merit in this day and age.

Dee Coover, executive director of the DeKalb Public Library was in attendance. The library issued a last minute surprise levy request of an additional $500,000 because all of the grant money they expected to receive has yet to materialize and they’ve already planned a grand opening in January.

The City of DeKalb is looking to increase its property tax levy mostly for pension actuaries. It’s already raised its water rates and according to Andrea Gorla is looking at another increase in sales tax. She said the county is increasing their levy, too.

So it was a great disservice to show a chart entitled Representative Total Tax Rate 2014 Actual Projected to 2030. In it the debt service on the bonds start with actual 2014 numbers and are projected to maturity reflecting the increases expected. All other taxing units shown, including the school district’s operating budget is frozen at 2014 levels. That keeps the total tax rate just barely under 15 or creates that illusion.

The district is asking for $1.2 million more from property taxes than last year for its operating budget. The levy information will be published, then the board will hold a hearing and vote on adopting the levy Dec. 15.

Former 2nd ward alderman Tom Teresinski questioned some of the numbers as he tends to do. He challenged others to produce solutions.

Jim Mason suggested default. His business is owning real estate includng rental income and commercial properties. His experience taught him that when taxes are higher than mortgages property values fall.

Gorla responded that District 428 would never consider defaulting on its debt voluntarily. Mason told her that they must then be OK with most of their taxpayers defaulting or walking away from their homes and investments.

As blunt as Mason’s message is it is a possible solution if the debt service and operating expenses exceed what District 428 taxpayers can afford.

Chuck Shepard, a local general contractor and commercial property owner, said the charts and numbers didn’t make him feel comfortable at all if that was their intent. He said they might as well throw the county sales tax referendum projections out the window because voters would not pass that referendum.

Will Heinisch who sells high end construction equipment and owns property in 428 said the solution was to bite the bullet and pay the debt service as scheduled to painfully retire the debt. He did not want the solution to be kick the can down the road.

Heinisch worries that an additional sales tax of any kind for any purpose would put him out of business because his competitors not in DeKalb would enjoy too much of a price advantage.

First ward alderman Dave Jacobson said he was hearing the concerns expressed at the meeting by the business community. But he said the loudest complaints are coming from the residents who simply can’t afford to live here anymore.

For more reading…

How Champaign County is spending their County School Facility Occupation Tax approved by voters in 2009 by the Champaign News Gazette.

Champaign County is Breaking Their Promises on Sales Tax Hike by Illinois Policy.

 

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