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While the community buzzes about recently announced plans to build a K-8 Fifth Ward school, questions remain about how Evanston/Skokie School District 65 plans to pay for the new school.
Addressing District 65 committee meetings on March 7 and 9, District 65 Chief Financial and Operations Officer Raphael Obafemi described a funding model he developed that Superintendent Devon Horton called “miraculous.”
Obafemi’s model involves the use of lease certificates to pay for the new Fifth Ward school, which the district estimates will cost $40 million to build.
Lease certificates are long-term financial commitments exclusively used for funding new buildings, Obafemi explained.
The lease certificates would be paid back through the district’s operating budget using transportation savings resulting from the Student Assignment Project (SAP), which would redraw school attendance lines to create more walkable schools, he explained.
Officials said that under the proposed plan, the district would save millions of dollars in transportation costs by no longer busing students, with an exception for early childhood students, students with individualized education programs and those with a dangerous route to school.
This year alone, the district is projected to pay $6.3 million in transportation costs, Obafemi said. Horton added that transportation costs will increase in coming years due to inflation.
In the last 10 years, the cost jumped from $2.5 million to $6.3 million, Horton said.
“Anticipate 20 years out, what that would mean for busing,” Obafemi added.
At the March 9 meeting, board member Joseph Hailpern said he feels much better investing that money in a facility and students’ experiences than in buses.
The money saved will go towards the lease certificates, which will take about 18 years to pay off, Obafemi said. Annual debt service payments are estimated at $3.2 million per year for 18 years, and once the district pays off the debt, the district will own the building, he said.
Obagemi added that lease certificates have been around for more than 20 years, and that other nearby school districts, including Sunset Ridge School District 29 and West Aurora School District 129, have also used these for new buildings.
“This is not new,” he said.
No referendum in store with funding plan
Typically, a school district would issue a general obligation bond for capital projects, including renovating old buildings and constructing new ones, Obafemi explained in a memo to the RoundTable.
Obafemi said nearly 20 years ago, the district issued general obligation bonds, some of which were used to pay for technology upgrades. Some of those bonds still need to be paid back, even though the upgrades purchased by those bonds are no longer in use.
Each school district in Illinois has a bonding borrowing limit, governed by the debt service extension base, Obafemi explained. The District 65 limit is maxed out until 2036, he added.
“As a result of those decisions, it’s practically impossible for us to be able to issue additional bonds,” Obafemi said.
The only way for the district to issue a bond, given that it’s reached the bonding borrowing limit, is through a referendum, or a district-wide vote, he wrote in his memo.
If the majority of the taxpayers in the community vote in favor, the referendum request succeeds and the district can issue a general obligation bond, which would be paid out through an increase in property taxes, he said.
With general obligation bonds, the district doesn’t directly handle the debt payment, Obafemi said.
“That’s something that’s been burdened to the taxpayer to fulfill,” Hailpern added.
Board Vice President Elisabeth “Biz” Lindsay-Ryan explained the board is opposed to a referendum because the ensuing bond would lead to a tax increase.
“We really don’t want to price more people out of Evanston,” she said. “It’s already significantly challenging to afford to live here.”
A 2012 attempt to build a Fifth Ward school failed because the referendum request didn’t pass. In that referendum request, 45.21% voted in favor and 54.79% voted against.
Addressing the community’s questions
Some community members have raised questions about the efficacy of lease certificates rather than a general obligation bond, Obafemi said.
“As far as the interest rate, there’s a negligible difference,” he said.
Both general obligation bonds and lease certificates are “underwritten based on the underlying credit rating of the issuing organization,” he wrote in his memo.
With lease certificates, the subsequent loan is used as collateral to issue bonds, he wrote. The interest rate could fall anywhere between 0 and 3 basis points depending on market conditions, he added.
Obafemi also addressed the Dr. Bessie Rhodes School of Global Studies building, which would be sold, according to the plan. Estimating very conservatively, he said the district would likely receive about between $2 million and $3 million for the building.
Obafemi said he received some questions asking why the money saved through transportation costs can’t go towards existing buildings. Lease certificates can only be used on a new construction, he explained.
Many community members feel the plan to build a Fifth Ward school and the conversation about lease certificates is rushed, Lindsay-Ryan said, but it’s common for changes this drastic to feel rushed because, in many cases, community members don’t pay attention until they themselves feel the impact.
“We did have this conversation about the lease certificates at an open meeting in July,” Lindsay-Ryan said. “We were very clear at that time our reasoning around not wanting to go to referendum.”
Lindsay-Ryan added that while the district wants to hear questions and concerns, community members need to move on from the assumption that a change to the district’s structure would create harm that didn’t exist before.
“Folks are absolutely harmed by our current system,” she said. “We are trying to solve that problem.”