If the public votes yes on the school district’s debt restructuring question, taxpayers will pay an additional $22 million of Red Plan debt. A yes vote will give the school board a green light to convert non-levied bond debt to levied bond debt and and move that debt to the taxpayers. The district has been paying $2.6 million annually out of its budget to pay Red Plan debt.
The district has been paying these millions out of its General Fund, based on claims that the consolidation plan would produce a revenue stream from efficiency savings and from the sale of all the excess property closed and abandoned through consolidation. Because this revenue stream proved to be largely a bust, the district has been effectively robbing from classrooms to pay for its new buildings. The school board wants to move the remaining balance to the taxpayers, so more of the budget can be channeled into education.
When the Red Plan financing scheme was first implemented, the district was making payments for two types of Red Plan bonds out of its General Fund. The non-levied bonds were called lease-purchase. The levied bonds were called lease-levy. As the name implies, lease-levy was levied bond debt and could be transferred to taxpayers anytime without a vote from the public. The school board moved this debt onto the taxpayers with two big tax increases in 2013 and 2014. That debt will finally be paid off in 2028.
The people responsible for the Red Plan promised that “due to savings and sales of unused property, almost half the total cost is already paid for.” Taxpayers will pay about $67 million more than they were told they would have to pay from the levied bond debt transferred to them in 2013 and 2014. If the public approves this debt structuring scheme on the November ballot, taxpayers will pay $22 million more–for a total of nearly $90 million more than they were told they would have to pay.
Property on the Central High campus was recently sold for $7.8 million, but the school board has broken its promise to use proceeds from the sales of unused property to lower the tax burden. The district is instead using the $7.8 million in its budget.
This whole scheme was a reckless financial gamble approved by the school board of ISD 709, over the objections of many people. Pulling millions out of the district’s budget to pay for buildings–based on gauzy, unverifiable savings claims and overhyped property sales–was irresponsible. Stan Mack, one of the Superintendent candidates who applied to replace Keith Dixon in 2011, described the scheme as “major leakage in the General Fund, caused by school board action.”
The school board has placed a very innocuous-sounding question on the November ballot, hoping the public will say yes without knowing the cost. Again, most of the Red Plan’s debt will finally be paid off in 2028, dropping the tax burden significantly in 2029. The district has already earmarked payments for its new administration building and heated bus barn (nearly $8 million/year for five years) to begin in 2029. If the public says yes to this debt restructuring question, Duluth taxpayers will also shoulder another $22 million over two years. How much more the school board will have dropped in–to fill this empty tax slot–by the time 2029 actually comes around is anyone’s guess.
No one has been able to tell me how much the bond brokerage firm will make off this deal. The Superintendent didn’t know, the Finance Manager told me she’d look at the contracts and no school board member asked. It will be quite expensive and the taxpayers will pay the freight. The firm’s representative waved his arms around a lot when he was explaining this plan to the school board during the July 13th Committee of the Whole meeting. He looked like the owner of a car dealership, giving a sales lesson to a new batch of salespeople. He told the board to focus on the beauty of the car, not the cost: “If we get stuck on…the taxes, what it’s gonna cost me…we’re gonna not be successful.” During the presentation, the board Chair dismissively described the whole financial maneuver as “just a little bit of restructured debt.” She declared that she’d been “restructuring debt my whole life with my credit cards.”
Whether or not someone who has been restructuring debt with credit cards her whole life should be controlling public funds is certainly debatable, but I doubt the Chair has been converting non-levied bond debt to levied bond debt and moving around these kinds of millions. Her attitude was acceptably dismissive. The public’s representatives should be informing the public, not colluding to hoodwink the public.
Voting yes on this question will finally plug major leakage from the General Fund caused by the school board, and will be very helpful to the school district and the students, but citizens have every right to fully informed about the cost when they make this decision.
