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Paynesville Press - August 1, 2001

District examines options for extra revenue

By Michael Jacobson

The school board may decide within the next six weeks whether to pursue an excess levy to raise extra revenue for the school district.

To get the measure on the ballot on Tuesday, Nov. 6, the school district must contact the state 49 days before the general election. This means a decision needs to be made by Tuesday, Sept. 18.

However, if the school district is in statutory operating debt - which remains a possibility - they could hold an election at another date, according to Carolyn Drude, an executive vice president with Ehlers and Associates, the district's financial advisor. Approving a levy for taxes payable in 2002 would provide money for the school a year from now, for the 2002-03 school year.

Drude answered financial questions for the school board at their meeting on Tuesday, July 24, and discussed the possibility of an excess levy, refinancing the 1993 school bonds, and the sale of aid anticipation certificates.

The school district currently has a $315 per student excess levy, which raises $429,000 per year for the district, according to the Department of Children, Families and Learning. Next year, though, the state will pay $415 per pupil in lieu of an excess levy, providing an additional $130,000 for the local school district, and wiping out the local portion of the tax burden from the excess levy.

Market Value
$50,000 $13 $32
$70,000 $19 $44
$100,000 $26 $64
$125,000 $33 $79
$150,000 $40 $95
$200,000 $53 $127
$300,000 $79 $191
$500,000 $132 $318

School officials think the school will need more revenue from an additional excess levy to avoid more budget cuts. The school cut over $500,000 from its budget for 2001-02.

Drude presented two illustrations for additional excess levies to the school board. These are illustrations, she stressed, because the complexity of the state changes to education funding and to property tax reform aren't completely known yet, in part due to the late conclusion of the legislative session.

"I'd like to know how many legislators knew what they voted on," wondered Pat Flanders, school board chairman, of the state funding formulas.

"I think they don't," answered Drude.

One illustration presented by Drude called for an additional $126 per pupil unit for taxes payable in 2002. This was estimated to raise $225,000 for the school district, of which $176,000 would come from the state and $49,000 would come from a local tax levy.

The state would effectively pay 80 percent of such a levy. "We actually get $175,000 from the state, and we have to pay $50,000 locally to get it," said superintendent Howard Caldwell.

An excess levy for more than $126 per pupil unit reduces the percentage of state aid. Here, Drude estimated that $345,000 could be raised, with $226,000 from the state and $119,000 from a local levy.

In other words, a $100 increase in excess levy, from $126 to $226, would cost the state $50,000 and local taxpayers $70,000.

Unknowns in the funding formula include the new assessments for land values and the exemption of certain land from education levies: seasonal property (lake cabins) and agricultural land, said Drude.

This also means the taxes for a new levy would need to be paid by residential homesteads (including ag homesteads and one acre of land), rental properties, and commercial and industrial properties.

Bond refinancing
With interest rates continuing to drop, Drude also discussed refinancing the school district's 1993 bonds. The school district has an opportunity to redeem the bonds, which paid for the new middle school and elementary school renovation, from November to February.

Interest rates are low enough to save money by refinancing, Drude said. A recent refinancing by their firm yielded rates lower than five percent. She said the district could save $480,000 over the 15 years that remain on these bonds, which amounts to $32,000 per year.

The question is when will rates be the lowest between November and February, during the district's window of opportunity for refinancing. "Will rates continue to be this good?" asked Drude. "Will they get better?"

The district is taking bids for the issuance costs of new bonds. Ehlers and Associates will bid, but Drude pledged to the board that her firm would match the price of the lowest bidder to keep the district's business.

Standard procedures would include the issuance cost over the life of the new bonds, but Drude warned the board that a rash of requests from school districts to transfer money from their debt retirement accounts to their general funds has the state taking a closer look at fund balances in districts' debt retirement accounts. None of the transfer requests were granted.

Because school districts are required to levy an extra five percent of their bond payments, debt retirement funds gain a surplus. "It appears that (the state) will not allow those balances to grow like they have in the past," Drude said.

In an effort to keep the debt retirement surplus as low as possible, Drude suggested paying for the new bond issuance from this account. She described the worst-case scenario as the district being forced to spend its debt fund, reducing the tax levy one year, and then having taxes resume at a higher level.

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