Iowa City School Board Tables SILO Vote, Hears Proposal to Borrow Funds for Projects Instead

It had all the makings of an Iowa City School Board battle.

There was a limited pot of money up for grabs: $32 million in local option sales tax money (SILO) earmarked for the building of a third comprehensive high school. This was money that some board members indicated in previous meetings they were interested in diverting to what they felt were more pressing needs in the district, such as overcrowding at the elementary school level at Penn Elementary School in North Liberty and in Southeast Iowa City. Overcrowding that could be solved by building new elementary schools in these areas.

At Tuesday night's school board meeting there were more than 50 passionate parents with different agendas and hailing from different towns, many of them with valid requests for urgent improvements to the district that this $32 million would only partially cover. Meanwhile, advocates of the third high school worried that diverting the funds would be another road block to the future school materializing.

There were television cameras and reporters on hand to capture the tumult that would surely result from the struggle over limited resources.

There was only one snag:

The battle never happened. 

Before any argument over SILO funding could begin, board member Tuyet Dorau requested that the issue be tabled until a later meeting so the board members could consider some new funding options that came to light during the board's recent finance committee meeting.

Dorau said the district's needs exceed the current funding provided by SILO, and it would be good to learn all of the district's options for dealing with them instead of "squabbling over 50 cents when we actually need a dollar."

After receiving assurances that the potential of reallocating the SILO dollars could be brought up again at a later date and would not be dropped from consideration, the board unanimously agreed to hear the new information before making a decision. The board also approved a vote for asking Superintendent Stephen Murley to provide them with direction for how he would like the district to proceed with the funding.

The board will pick up the funding topic again at a work session on Oct. 11.

Where they will also discuss the borrowing option

Craig Hansel, the district's chief financial officer presented the board with a different option to pay for the district's many pressing needs.

In short, the district could borrow money instead to supplement the $32 million in SILO dollars it already has on hand.

Hansel told the board that the district has traditionally approached building new schools with a "Pay As You Go" model, saving funds for large projects with funding sources such, such as the accumulation of SILO funding, and paying for buildings with funds that the district had on hand.

However, Hansel said several factors pointed the district in favor of borrowing funding to do the projects:  interest rates are currently very low; the Iowa City School District's Triple A bond rating is the highest in the state, allowing the district to borrow at a low rate; the district's various building infrastructure needs exceed what can be covered by SILO, potentially totalling $94 million; and the school district population continues to grow, meaning that bad problems now have the potential to multiply.

"The Pay as You Go method that we've traditionally used is becoming increasingly hard to feel good about." Hansel said. "Board members really need to seriously think about borrowing funding."

Hansel said that if the board decides to borrow money to cover the projects, they have two different borrowing options that they can use separately or in combination with each other and SILO fundng.

One, they can use General Obligation (GO) bonds, which require a public referendum with a 60 percent super majority to approve and the bonds are partially paid for with an increase in property taxes.

The other option is called Tax Anticipation Revenue Bonds, dubbed TARBs by Iowa City Superintendent Steve Murley. These bonds can be approved by the board with a public vote, and the funding is provided by borrowing against anticipating sales tax revenue, effectively allowing the district to spend future SILO money before it was fully accrued. 

The advantage of GO bonds is that the amount potentially raised ($281 million) through this method is higher than the $100 million from TARBs, and it would be a funding source in addition to SILO dollars while TARBs would lock some future SILO funding into paying off the bonds. TARBs, on the other hand, would be far easier for the board to approve rapidly and would not result in increased taxes.

It should be noted that this November, Johnson County voters are being asked to approve a $46.8 million bond issue on to build a criminal justice center. These are general obligation bonds.

So TARBs sound like an easy and quick way to get these projects done, right. Let's just get these projects started all at once and...

Well here are the catches you were waiting for

In order to borrow against future SILO revenue, and also in order to use future SILO dollars on building projects after it is set to expire (in the county) in 2017, the district will need to renew its Revenue Purpose Statement, a state required document issued by the district that stipulates what the money will be used for.

Hansel said that while the district has time before its statement expires in 2017, the state allows districts to approve new plans that will then supercede the plans set to expire earlier than the expiration date. He told the board that since the district would like to make plans and use the money now, it would be to the boards advantage to approve the new statement sooner rather than later.

The statement language, once issued by the district, would need to be approved by voters. Hansel said that unlike a GO bond referendum, however, which is countywide, the purpose statement renewal only involves voters in the school district. The soonest this election could be held by state law would be Dec. 4 of this year, but that is only if the school board files for this special election by Oct. 19.

One more catch.

Even if the board manages to determine how to generate the funding and how to pay back any borrowed dollars, the district administrators will also have to determine how to pay for the new staff of these new buildings out of the district's general fund.

"What the board will want to see next is when these schools can potentially (be opened and staffed), and I'm working on those models right now," Hansel said.

Hansel said that in any case this will mean that the school board, and the community at large, will have to prioritize what projects to do first, with the district likely borrowing or paying as it goes (or both) in smaller segments of money.