Premium path takes you above debt limit

In their rush to build a school, it appears PG 46 will be using premium bonds to get past their debt limit to finance the $18 million in bonds for the March referendum. The total cost to the district 46 taxpayers will be $49 million (including $7 million in old bonds).


Premium path takes you above debt limit
BROKEN BONDS
By Jeffrey Gaunt and Emily KroneDaily Herald Staff WritersPosted Sunday, February 05, 2006
Grayslake voters have been generous.
In 1999, they approved a $23.2 million bond issue to build two elementary schools.
In 2002, they approved a $50æmillion bond issue to build a high school.
And in 2004, they approved another $34 million to build an elementary school for the Madrona Village subdivision in the Lake County community of Round Lake.
But Grayslake Elementary District 46 and Grayslake High School District 127 couldn’t just take what voters were willing to give.
In addition to sharing voters, the districts shared a problem: the growing student population was outpacing increases in property values.
Neither district had room under its state-imposed debt cap — which limits indebtedness to 6.9 percent of the equalized assessed value of taxable property in each district — to issue all of the bonds voters approved.
That is, until the districts hit on a common solution to their shared problem: money that the state doesn’t count as debt.
Twice since 2002, District 127 took cash bonuses — called premiums — in excess of its debt limit.
Three times since 2000 District 46 did the same.
In exchange, both districts accepted above-market interest rates — as high as 9 percent compound interest, the limit set by the state.
In total, District 127 has received $37.22 million in bonds and $17.28 in premiums — for a total of $54.50 million.
That’s $4.50 million more than the $50 million voters approved.
Voters now are due to pay back $95.71 million for their $50 million OK.
And district leaders are prepared to borrow more.
The district’s 2005-06 budget includes proceeds from a planned $14æmillion bond sale. That would bring the amount collected through loans and premiums to $68 million — $18æmillion more than voters approved.
The district needed the extra cash because the original plan to house upperclassmen and underclassmen on separate campuses expanded into a plan for two, 4-year high schools, Associate Superintendent for Business Affairs Michael Zelek said.
“Now we need other things,” Zelek said. “Some conditions aren’t always known.”
Maximizing revenue was in the best interest of the district, Zelek said.
“The law allows us to do this,” he said. “We’re following all practices in the state statutes.”
But District 46 officials may change course.
After fielding questions from the Daily Herald about the premiums, District 46 officials now say they’re considering returning the money.
Like District 127, District 46 took premiums in excess of its debt limit.
On a 2001 issue, for example, the district issued $4 million in bonds and tacked on a $3.29æmillion premium.
And like their counterparts, District 46 officials paid for the premium by agreeing to 9 percent compound interest on the loan.
On those bonds, taxpayers will pay back $2.41 for every dollar borrowed — making it among the most costly loans issued by suburban school districts in the past six years.
But residents may get some of that money back.
“The district is presently researching and considering its options in light of the new information on the premiums,” a news release issued Wednesday said.
“There are two main options under consideration: to complete the projects as planned or abate the bonds.”
District officials said they couldn’t comment further because they weren’t there at the time the bonds were issued.
For the next 20 years, their decision will affect taxpayers — and the children of taxpayers — who weren’t there when the bonds were issued, either.