Getting out of the hole the BoE has put us in

If the school board is short of money today, it’s because of the hole it created for itself, and for the taxpayers, when it decided in the fall of 2000 to issue school bonds repayable in nine years.

The school system’s latest financial statements show that in each of the fiscal years ending June 30, 2009 and 2010, the system must repay $20.7 million toward its bonds, but in 2011 it must repay $12.7 million, which is $8 million less.

With about 33,000 families in Fayette contributing two-thirds of the tax — businesses and cars provide the other third — that could be viewed as a decrease of $160 per household, starting with the property taxes due in the fall of 2010.

That means pain in the fall of 2008 (which it is too late to do anything about), and pain in the fall of 2009, with substantial relief in sight in the fall of 2010.

There’s even more good news, in a way, because the next year only $11.4 million needs to be repaid. That’s an extra $1.3 million tax decrease in the fall of 2011, on top of the previous $8 million decrease in the fall of 2010.

The bond payments (and taxes) keep going down even further after that.

Had the school board borrowed sensibly after the 2000 vote, the annual bond payments could have been halved, and so too could the school bond property tax. Instead of facing a millage of 4.17 in 2008 (about $417 for a $250,000 house), taxpayers would face half that. (A mill is a tax of $1 per $1000 of assessed value, and the assessed value is 40 percent of the fair market value established by the board of tax assessors.)

An excessive bond repayment forces the school board to become tighter with money for normal operations, because the board knows there’s a limit to what people can pay. If a desirable cap on total school tax is 23 mills, then using up 4.2 for school bonds leaves only 18.8 for school operations.

For the fall of 2008, this year, regardless of whether or not they vote for the SPLOST on Nov. 4, the Fayette taxpayers are stuck with the $20.7 million bond repayment and the 4.17 millage. The sales tax revenue from a SPLOST won’t bring a refund.

For the fall of 2009, there’s another $20.7 million to pay, but that becomes a one-time event as the bond repayments go down rapidly after that.

For the fall of 2010 when there’s $12.7 million to repay, a bond millage of no more than 2.50 should be required, instead of the 4.17 in 2008.

For the fall of 2011, we are looking at a millage under 2.30.

SPLOST or no SPLOST, there is property tax relief coming our way on the school bonds. The actual millages are likely to be even less than I show, as the tax digest is likely to grow.

The Constitution of the state of Georgia currently places a limit of 20 mills on the tax our school board can impose for school maintenance and operations. That’s separate from the school bond tax.

For 2008, the school board established a rate of 19.75, leaving itself a bit of room still. For five years in a row, between 1995 and 1999, Fayette taxpayers paid at a rate of 19.84. So we’ve seen worse.

Note, incidentally, that the wording of Article 8, Section 6, Paragraph 2 of the Georgia Constitution indicates that the 20-mill limit could be raised if the school board wanted it and if Fayette County voters agreed.

The total school millage for 2008 is set at 23.92. For five years in a row, from 1994 to 1998, the total school millage rate was higher than that, reaching a high of 25.43 in 1995. This shows that the older taxpayers in Fayette County made more of a sacrifice than is called for today.

Debt that becomes burdensome can be restructured. It’s done all the time. The reason school debt may have become burdensome in Fayette County is shameful. The school board was financially uneducated, unreasonable and stubborn. It saddled the unsuspecting and trusting taxpayers of the county with excessive payments, and we are now reaping the consequences as times have become more difficult.

Interestingly enough, by the time of the 2004 bond vote the school board had rid itself of its interest-averse comptroller and found a financial adviser who seems to have provided it with sound advice and a decent, even creative, repayment schedule. That might be the person to talk to about debt restructuring.

In 2000, I had warned the superintendent that the 9-year bond repayment schedule would cause problems in the likely event the school board found it necessary to try to finance more new schools five years or so down the road.

When it came time to ask the public for more money to build schools in 2004, the school system’s new financial adviser found a way to issue bonds with interest payments delayed for at least four years, and that saved the day. It may have cost us in ways we don’t yet know, and the interest-phobic on the school board may have swallowed hard. With the county asking for a road SPLOST, they didn’t dare ask for a school SPLOST.

As there now remains only one more painful fall to go, in 2009, the expense of debt restructuring may not be worth the effort. It’s mostly the 2009 bond tax of $20.7 million that needs to be trimmed down, and it should be possible to find a simple method to do it. Where there’s a will, there’s usually a way.

Rushing headlong and at the last minute into a SPLOST vote this fall, with no meaningful public input, is just like the disreputable school board of 2000. Yet, the taxpayers are often forgiving, and their reaction will be interesting.

Next week, we’ll consider what the school board wants you to know about SPLOST, and some things it does not want you to know.