February 05, 2014 - Brandon Twp.- District residents will likely see an increase from the current 8.24 mills for the debt levy to 9.7 mills on their summer tax bills, and that's the good news.
Previously, the increase was expected to hit 13 mills this year, the maximum allowable, in order for the district to be in compliance with Public Act 437, passed in 2012, which mandates that schools pay off loans from the state within six years of paying off bonds. The district anticipates paying off a $73 million bond passed by voters in 2006, in 2026. Under P.A. 437 the loans the district has had to take out every year since 2006 must be paid off by 2032. The housing market crashed shortly after the bond passed and the district has had to borrow from the state every year to make payments on the bond's principal and interest. The district currently owes the state $38 million, which includes $8,873,553 of accrued interest at a 3.52280 percent rate.
Taxpayers can expect the pain of a 13-mill levy to be delayed until 2015, but let there be no doubt, the bill is still coming, said Rep. Brad Jacobsen.
Although he has co-sponsored House Bills 5098, 5099, and 5100, which offer some form of relief, notably in one which offers a 2-year grace period on repayment of the School Bond Loan Fund, and another that would reduce the amount of interest on the SBLF, these bills do not solve the problem for Brandon.
"We looked at several scenarios to ease the effect on districts and taxpayers and never came up with a fix everyone is happy with," said Jacobsen. "There is not a solution that will divert payment of those funds."
The expected levy of 9.7 mills on July 1 assumes 1 percent growth in taxable values. The mills levied could be less if growth is better than anticipated, said Jan Meek, executive director of business services for the district.
Both Meek and Superintendent Lorrie McMahon feel betrayed, saying that legislators have changed the original terms of the contract for the loan to be paid back, and question whether what the state has mandated is even legal. The jump in rate increases, McMahon said, are not the fault of the Board of Education, nor of the voters who approved a $73 million bond for school improvements in 2006, when property values were at their highest.
Jacobsen, however, seems to disagree. He was particularly insistent that one of the House bills he co-sponsored include a requirement that elected school board members receive financial training.
"So often we elect people to boards that are well-intentioned, or maybe they want to run because their son got kicked off football team and they're mad at the coach," he said. "(Elected officials and voters) that were borrowing didn't understand what they were doing... We see in villages, cities, people are in financial situations they didn't necessarily understand. It's like people with credit cards that keep spending and borrowing. One day you have to pay the piper."
He noted that in the 1960s, schools would borrow money from the state, but paid it back in a more timely fashion.
In the past several years, Jacobsen continued, rapid expansion of schools included pools, auditoriums, and more that were not necessary to operate schools, but were added on and then enrollment fell and the economy tanked.
"It's not just Brandon, schools across the state are in the same boat and it affects the state's credit rating," Jacobsen said. "We've crunched the numbers and can't keep living beyond our means... If (P.A. 437) wasn't in place, they would continue borrowing. The only thing we've done is tighten the rules. We are asking them to show they are able to pay us back in a reasonable time frame."
McMahon and Meek have been meeting with Robert Naughton, a financial consultant from Stauder, Barch, & Associ-ates. At no charge to the district, Naughton is examining the impact of different bills to the district and will put together a plan for McMahon and Meek to propose to legislators that will be more advantageous for the district.
The best case scenario, said Meek, would be for Brandon to be "grandfathered in," with P.A. 437 only affecting districts going forward, not ones like Brandon that were operating under previous assumptions.
"The effect of this law is like buying a house with a 30-year mortgage and the bank suddenly calling it in at 10 years," said McMahon. "We hope there will be new legislation that will give us relief."
Jacobsen said the entire state is on the hook for the money districts owe and it affects the state credit rating.
"If the Village of Ortonville wants to bond for sewers and the school districts are all in financial trouble, it goes into what the village pays for the sewer rate," said Jacobsen. "The state is not making money, the money goes to whomever the state borrowed from... It's a heartfelt problem we have here. It doesn't bode well for the entirety of the community. But this is something where somebody in Brandon Schools— whether it's the financial person, the superintendent, the treasurer, the school board—needs to step up and say, 'We blew it.' Someone along the line should say, 'We shouldn't have built that school or pool.' If they were a business, they would have been bankrupt."
Meek notes that P.A. 437 affects Brandon more than most, as one of the top 10 districts owing money to the state. Jacobsen said they have a lot of company, however, with roughly 150 schools statewide in borrowing mode from the SBLF and many with 20 years or more to pay it back. Potentially 150-200 more will be in trouble in the next few years.
"It's an awful situation," said Jacobsen. "The school aid fund is on the hook if they aren't cut off. Money borrowed is owed back, you can't borrow your way out of debt. The department of treasury is adamant these have to be paid back as soon as possible."
Susan covers Brandon Township and Ortonville