Janesville School Board approves debt payment
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Timothy F. Cullen
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Bill Sodemann
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Lori Stottler
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The Janesville School Board on Tuesday voted 8-1 to direct the administration to find up to $40,000 in funding from the capital improvement budget to pay for software to allow online registration for summer school.
Board member Bill Sodemann voted against the measure.
JANESVILLE — The Janesville School Board on Tuesday took its first step toward paying off a debt to the state that has ballooned due to two decades of minimum payments.
The board unanimously approved spending $300,000 from the district’s fund balance to the Wisconsin Retirement System liability. That payment saves the district $23,400 in immediate interest charges and saves $1.56 million before the liability is finally paid off.
“In the simplest form, we’re taking money from a fund that we’re earning less than four-tenths of one percent in interest to pay off a debt that we’re being charged 7.8 percent,” board member Tim Cullen said.
The board’s action was a continuation of a motion first proposed at its Jan. 12 meeting. Keith Pennington, the district’s chief financial officer, secured a couple days leeway on the Jan. 29 deadline to put the $300,000 toward the 2009 payment—reducing the 2009 interest by $23,400.
Pennington explained the district owes about $17 million in liability, and he sought direction from the board to put together a long-term payoff plan.
He presented several long-term options including doing nothing, making additional payments, looking into debt with a lower interest rate or a combination of those options.
Board members voiced support and opposition to a referendum to lock in a lower interest rate.
“I would strongly encourage (that the district) … stay away from referendums,” board member Peggy Sheridan said. “The public has been through enough, and I don’t want to see anything taken away from our students.”
But Cullen said the district can’t “go out and get $17 million without a referendum.”
Going to referendum or raising property taxes are the only two ways Cullen said he knows to pay off the liability. He pointed out that a “yes” vote on a referendum would be to save taxpayers money, as opposed to every other referendum that asks taxpayers to spend more money.
“This referendum I think is a no-brainer,” he said. “What is a third way to get money besides a referendum and raising property taxes?”
Board member Bill Sodemann pointed out that interest rates are at or near the bottom of all-time lows.
“It’d be my opinion that we take advantage of this rate before it jumps and get our plan in soon so that if rates do jump up double digits in the near future, we’re locked in at near 5, 5.5 (percent),” he said.
Board member Lori Stottler agreed that restructuring the debt now makes sense because of low interest rates.
“This might be a situation where we should let the taxpayer have a little bit more input,” she said. “This is their money. This is the debt we owe that we’re going to be paying off either through the tax dollars they pay through our revenue caps or through a referendum. I’d like to see both sides of the coin.”
The board will continue discussion on a long-term payoff plan Feb. 23.
Jan 29, 2010 at 10:14 a.m.
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janesvillian, you are right, the move has some merit. However, that wasn't my point. There is serious danger that the "savings" they are trying to get will be given right back to the teachers because they were paying the interest under the QEO previously anyway.
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This is why I'm frustrated with the way the district and the Gazette is framing this discussion. The rampant "interest" they're talking about was being paid by the staff... it wasn't a debt payment sitting on the books. Here's how it works:
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Salary = $40,000
Additional Payroll expenses:
FICA/Medicare = 7.65%
Wisconsin Retirement (WRS) = 11%
Total = $7,460
Actual Salary Expense (ignoring insurance) = $47,460.
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Now, the "rampant interest" is part of the 11%. If that debt is restructured, that percentage may fall by a percent or more. This REMOVES it from the cost for that employee (and the entire teacher group) to be expensed elsewhere. Let's pretend it is 1%. That same position from above now costs $47,060. What happens to that $400? It's now being used for the debt payment right? Are you sure? When it comes time to cost bargaining units again, how are you going to attribute those payments to those groups? Are they going to get the $400 back in salary? How can you prove it? The QEO may be gone, but if we hear of a package cost for the 09-11 contract that is above 3.8%, I want to know where this fits into the discussion. THAT'S MY POINT.
Jan 29, 2010 at 12:40 a.m.
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I see your point, but the board still has time to address any potential shortfall (and apparently intends to do so next month). Effectively they took some money from petty cash to pay a high-interest credit card bill. I still believe this represents long-term thinking and savings versus any short-term cash-flow issues that are only a potential.
Jan 28, 2010 at 2:28 p.m.
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janesvillean, that's not true. Fund balance is a record of funds on hand at fiscal year end. Operational expenditures are continuous. If fund balance is foolishly used to reduce the levy, that money will have to be replaced via a short term debt issuance or the district will run out of cash mid-year. That's why the fund balance level is where it is. School districts get most of their operational cash via taxes or the state after the first of the calendar year, which is the halfway point of the district budget.
Jan 28, 2010 at 2:11 p.m.
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rossnmeg, that doesn't seem unreasonable given the fact that this fund directly relates to compensation. Think of this savings as money (though not a whole lot) that will not have to be raised via taxes.
Jan 28, 2010 at 10:02 a.m.
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Fund Balance is an emergency and liquidity management fund. It isn't a checkbook. What's next, a new charter school paid for directly out of fund balance? SDJ does NOT have $30 million in "savings."
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The "minimum payment" was a mechanism within the WRS percentage contribution that was applied against the unfunded liability imposed by the retirement fund and the state legislature years ago.
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The ridiculous amount of debt placed on school districts because of this move was too much to handle when it was handed down. The percentage contribution was set up as a long term liability payment, not a structured debt payment. Yes, the interest has accumulated over the years, but the ONLY reason Janesville is doing this now is because the percentage contribution is a big sticking point when it comes to teacher bargaining and that the QEO was just repealed last spring. If the district borrows against this liability and pays it off, those payments will no longer be directly attributable to the teacher bargain.
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If you think that through (and if the union is smart), that means that the teachers will be after ALL of the interest savings from this debt restructuring because they were getting credit for it already anyway!!!
Jan 28, 2010 at 6:57 a.m.
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So, there was enough money in the fund balance to "give" the local tax payers $1.5 million about 8 months ago. SDJ has close to $30 million in savings. They can't pay off at least part of the debt from there? Keep a close eye on this. Money will be requested to give the taxpayers relief and provide construction jobs -- the public will be asked to do the "smart" move of borrowing while interest rates are low. . . It seems to me that some of our board members talk out of both sides of their mouths.
Jan 27, 2010 at 7:50 p.m.
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Thank goodness. Number One rule in economics (IMO) is "stay out of debt"; if in debt, "get out quickly".
Jan 27, 2010 at 7:29 p.m.
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Good Move
Jan 27, 2010 at 4:52 p.m.
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Good move. This is the equivalent of investing $300,000 in a fund that pays 7.4% interest annually.
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