The District 65 School Board adopted a resolution on May 22 stating its intent to issue $6.5 million in working cash bonds pursuant to Article 20 of the Illinois School Code. The stated purpose of the bonds is to enable the District “to have in its treasury at all times sufficient money to meet demands thereon for expenditures for corporate purposes.”

By issuing bonds, the district is, in essence, borrowing money from the buyers of the bonds.

Raphael Obafemi, District 65’s Chief Financial Officer, at the Board’s April 24 meeting.

The resolution does not provide any additional information about the  “corporate purposes” for which the district intends to use the $6.5 million.  But a memo dated March 10, prepared by Elizabeth Hennessy of Raymond James & Associates, the district’s financial consultant, indicates the issuance of the working cash bonds is part of a bond refinancing plan and the proceeds of the working cash bonds will be used for capital projects.

District 65 architects determined in a recent assessment of district buildings that $189 million in repairs are necessary between now and 2030. The district’s ability to pay for those repairs is very limited, absent a referendum.

Overall refinancing plan

The issuance of the $6.5 million in working cash bonds is part of an overall refinancing plan that Hennessy recommended at an April 19 District 65 finance committee meeting and then at an April 24 School Board meeting.

Under the plan, the District’s 2013 Series bonds that are callable on Dec. 1, 2023, would be refinanced. Because the bonds are callable, there is an “opportunity to refund the existing debt and issue additional bonds within the footprint of the existing 2013 bond debt service,” said Hennessy.  Because current interest rates are lower than the rates provided in the 2013 bonds, the district may save about $3.1 million through the refinancing, she said, even though the maturity dates will remain the same.

Hennessy said the same strategy applies to the district’s 2014 Series bonds that are callable on Dec. 1, 2024. The estimated savings that may be generated by refinancing these bonds is about $3.0 million, she added.

Raphael Obafemi, the district’s chief financial officer, told the RoundTable that the savings due to the two refinancings will be an estimated $6.1 million through the life of the refinanced bonds. This provides the district an opportunity to obtain new money through the issuance of new bonds as long as the district stays within its Debt Service Extension Base, he said.*  The district plans to “capture” that new money through the issuance of up to $6.5 million in working cash bonds, he said.

Obafemi added that the resolution of intent adopted by the board allows for the issuance of up to $6.5 million in working cash bonds because the estimated savings generated in the refinancing of the 2013 and 2014 bonds totals $6.1 million, and the savings may be more if interest rates come down between now and the time the bonds are issued.  He added the resolution of intent is good for three years.

Back-door referendum

In order to issue the $6.5 million in working cash bonds, District 65 must comply with the requirements of Article 20 of the School Code that govern what is commonly referred to as a “back-door referendum.” Among other things, the district must publish a notice in a local newspaper that it plans to issue $6.5 million in working cash bonds and advise that if 10% of the registered  voters in the district sign a petition asking that voters be allowed to decide in a referendum whether or not the district may issue the additional $6.5 million in bonds, then a referendum on the matter would be required.

The notice prepared by the district says the petition must be signed by 5,806 registered voters in the district, and the petition must be filed with the Secretary of the Board within 30 days of the publication of the notice.

If such a petition is filed, then the referendum would be held on March 19, 2024.

 If no such petition is filed within the 30-day period, then the district is authorized to issue the bonds without a referendum, although a public hearing is still required. The district has scheduled a public hearing for 7 p.m. June 12, in the board room in the Joseph E. Hill Education Center, 1500 McDaniel Ave., to hear comments on the proposed issuance of the bonds.

As previously noted, a bond authorization would be good for three years, so, for example, working cash bonds may be issued in two phases, in September 2013, and then in September 2014.

Overall debt

In a February 2022 assessment of District 65’s buildings, the district’s architects determined the repairs that should be made for each of the district’s building on a year-by-year basis between now and 2030. The building “deficiency needs” total $189 million.  At the April 24 School Board meeting, Obafemi said the cost today would be more than $200 million.

He added that the district’s ability to issue new bonds to fund capital projects, absent a referendum, is limited by its Debt Service Extension Base (DSEB). As a result, he said, the district has been attempting to find creative ways to raise funds for capital projects, such as refinancing existing bonds.

In 2019 and again in 2021, the district refinanced certain bonds in order to realize interest cost savings, which enabled it to issue new bonds to help address its capital project needs. In 2019 and 2021, the District realized savings of $4.7 million and $1.2 million respectively. Those amounts were spent on capital projects, said Hennessy.

Hennessy said there may be additional opportunities to use the same strategy in the next seven years, but they will be very limited up through 2030.

Issuing working cash bonds to fund capital projects has been challenged in a number of court cases, but has been ruled lawful by both the First and Second District Appellate Courts in Illinois. See e.g., 1400 Wolf Road, LLC et al v. Pappas (No. 1-19-2030, 1st Dist. 2020).


*A school district’s ability to fund capital projects is limited by its Debt Service Extension Base (DSEB), which is a state-imposed limit on its ability to borrow funds for capital projects without a referendum.

A school district’s DSEB is the amount of debt service the district had on non-referendum bonds in 1994. District 65’s debt service on bonds in 1994 was $4,858,295. In 2009, a CPI factor was added to the DSEB. 

Larry Gavin

Larry Gavin was a co-founder of the Evanston RoundTable in 1998 and assisted in its conversion to a non-profit in 2021. He has received many journalism awards for his articles on education, housing and...

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