Franklin schools has enough money in savings to make debt payments through the end of the year; but unless changes are made, the school district won’t be able to make the payments in 2014.
Now the school board must consider options, including restructuring debt and borrowing more money to ensure it can make
annual debt payments and pay for building upgrades, increases in medical costs and raises for employees.
The school district, which
borrowed more than $100 million to build a new high school and remodel the middle school nearly a decade ago, isn’t collecting enough money to pay all of its debt because of property tax caps that limit how much governments can collect in taxes.
For the past three years, the school district has made up for the shortfall by saving money typically spent replacing buses or upgrading buildings, executive director of finance Jeff Mercer said.
Debt payments are due in December and June. In December, Franklin needed to have about $6.9 million for the payments but had less than $4.6 million, Mercer said.
The district can use its savings of about $4.6 million to make up the difference in June and again for the shortfall of more than $2 million that Mercer is expecting in December. Franklin might be able to save another $1.6 million by the end of the year, but Mercer expects the school district to face an average $2.5 million shortfall for debt payments each year for at least the next 10 years, he said.
“This isn’t a one-year issue,” Mercer said.
Before the end of the year, Franklin school board members will need to decide how the school district can keep up with debt payments and pay for building expenses and some employees’ salaries and medical costs, Mercer said.
The school board will receive an update on its options at its meeting today.
Those options could include a referendum, asking Franklin taxpayers to pay more in their property taxes to help the school district cover its costs. Center Grove schools tried a referendum in 2010 when the school district was concerned about making cuts, but voters rejected the proposal.
Franklin also could consider restructuring its debt through the state’s distressed unit appeals board, which approves whether a school district can extend or alter its debt payments.
School districts are required by law to keep up with their debt payments, and both Franklin and Clark-Pleasant schools have been hard hit by the property tax caps because both school districts built new schools before the caps were put in place.
Last year, Clark-Pleasant refinanced its debt to lower the yearly payments and save taxpayers more than $4 million because the school district was able to get lower interest rates. That hasn’t been an option for Franklin because it didn’t have similar interest rate options available, Mercer said.
The Franklin school board received 10 examples last fall of how to restructure its debt as well as find additional money for building upgrades, technology and transportation.
Many of those options included issuing new bonds to pay off debt and save on interest for loans that paid for the new high school in 2004. The amount that Franklin’s annual debt payments would drop under those options would depend on the number of new bonds sold; and, depending on the interest rates, taxpayers could either save up to $858,000 or pay an additional $3.3 million over the next 16 to 17 years.
None of those refinancing options provided extra money for maintaining any of Franklin’s schools or funding technology such as new computers.
One option board members considered in September included taking out $2 million in loans for building maintenance and technology costs. But that would cause the school district’s debt payments to rise, and taxpayers would pay about $530,000 in interest over the next 14 to 15 years.
School board members will discuss the issues again and make a decision by the end of the year.