SPLOST and a snowballing school debt
by Kyle Dominy
kdominy@cherokeetribune.com
August 14, 2011 12:00 AM | 6431 views | 2 2 comments | 16 16 recommendations | email to a friend | print
CANTON — Since 1998, the Cherokee County School District has taken on millions of dollars in bond debt that far exceeds the SPLOST revenue anticipated to pay it down. Further, the snowballing liability is an ailment school officials have no prescription for — other than endless cycles of special purpose local option sales tax programs or making property owners swallow a millage rate increase.

Last month, the school board voted unanimously to ask voters in November for a five-year continuation of the education SPLOST, from 2012 through 2017, and allow the school district to take on up to $138 million in additional bond debt.

Over the past 13 years, the school system has taken on more than $457 million of debt to build new facilities and fund technology advancements. The district, during that time, has asked voters to approve the bond debt through a referendum question that is packaged with its SPLOST request. The initial idea was to issue general obligation bonds to get money up front to pay for needed improvements, then use SPLOST revenues to cover the bond debt.

But as the economy turned south in the mid- to late 2000s, special sales tax revenues declined and were not enough to cover bond debt. Still, school leaders continued issuing voter-approved bonds that exceeded SPLOST revenue and began building debt with no plan on how to pay it off.

The imbalance has now reached a point to where all of the $155.7 million in anticipated revenue from the proposed SPLOST would be used to pay down, not off, past debt, Cherokee Schools Superintendent Frank Petruzielo said. And any issuance of new bonds would be used to pay for future projects.

According to the school system’s current budget, Cherokee County schools will be paying off its current bond debt through 2028, well after the expiration of the current SPLOST — which expires December 2012 — and the life of the proposed SPLOST. If any new debt is acquired, the school system will be paying back bond debt through 2033.

According to information from the district, the school system still owes more than $368 million on the principal balance of its current debt, and an additional $183 million in interest.

Ed-SPLOST history


Cherokee voters first approved the education SPLOST in 1997, the first year state law allowed school systems to levy the tax. The school system began collecting the 1-percent sales tax in 1998. The tax originally expired in 2002.

New facility construction became a priority to the school system after rapid growth, which led to overcrowding, in the 1990s.

In 2000, to further address the population explosion, the school system organized a Blue Ribbon Committee of civic, business and community leaders to explore construction needs. In 2001, the Cherokee County Board of Education approved the committee’s plan to ask voters to approve three additional, consecutive, five-year SPLOST programs while simultaneously asking residents in a packaged question to allow the district to incur bond indebtedness to fund construction projects.

The 28-member Blue Ribbon Committee, made up of teachers, parents, business leaders, and county and city officials, identified $500 million in “immediate” needs to compensate for the population explosion, according to the school district. The committee recommended issuing bonds to fund immediate construction, rather than waiting for SPLOST dollars to come in. To repay those bonds would require voters to approve three consecutive SPLOST programs in 2001, 2006 and 2011.

“Due to the downturns in the economy, Ed-SPLOST revenues failed to produce enough money to fund the planned projects and repay the bonds as first calculated,” Petruzielo said. “Essentially, the School District has had to refinance its debt by extending its payments further into the future. Additionally, due to the continued growth in the past decade, additional improvements have been required. Because of these plans put in place 10 years ago, which were openly discussed during that time and overwhelmingly approved by voters in 2001 and 2006, the School District continues to chart the same course as laid out by the committee.

“Should the voters not approve the 2011 Ed-SPLOST renewal, the debt must be repaid. If the school board does not increase the bond millage rate sufficiently to continue to pay the current obligations, the state will withdraw funds from the operational portion of the District’s budget in a sufficient amount to make these payments.”

When asked if there was ever an alternative plan if voters failed to approve any or all of the SPLOST renewals, Petruzielo said simply, “No.”

When asked if the committee submitted a plan to cover any debt remaining after the final recommended SPLOST, Petruzielo again said, “No.”

Construction and continued need


School system officials have repeatedly argued that levying the sales tax is the fairest way to cover construction costs.

“The Ed-SPLOST is paid by everyone who shops in the county, both residents and non-residents alike,” a SPLOST frequently asked questions document released by the school system explains. “It also spreads the cost among current residents and visitors and future residents and visitors over a five-year period.”

Without the SPLOST, the school system would have to suspend construction and increase the property tax rate to cover payments on existing debt.

“It would be bad for everybody if it didn’t pass,” Post 2 school board member Mike Chapman said.

Chapman said he thought the SPLOST was the fairest way to cover the costs, noting current growth in the school system’s enrollment.

Cherokee schools resumed classes Aug. 1. According to numbers released by the school system, student enrollment on Friday was 38,791, which is an increase of 208 students from this time last year. According to projections, the school system expects about 39,300 students by the end of the academic year.

Through the SPLOST/bond initiatives, the Cherokee County School District has completed 29 projects, building new schools or replacing existing schools with larger facilities.

The most recent finished project is the Indian Knoll Elementary School on Univeter Road in Canton.

The school, which opened this year, was built to ease overcrowding at nearby elementary schools.

There are currently three projects under construction funded by the initiatives. They include another new elementary school on school system property on Hunt Road, a replacement for Ball Ground Elementary and a replacement for E.T. Booth Elementary.

If approved by voters, the school system plans to use funds from newly issued bonds to replace Dean Rusk and Teasley middle schools, as well as other infrastructure and technology advancements.

Additionally, $12.5 million in issued bonds will be earmarked for a new administration building to replace the school system’s aging facility in downtown Canton.

Petruzielo said all anticipated revenues from the proposed SPLOST would be used to pay down past bond debt.

Looking ahead


Petruzielo has said that if the SPLOST fails to garner voter approval, the property tax millage rate would have to increase by at least 3.9 mills to cover the existing debt.

The school system has two millage rates, one for operations and maintenance, and another for debt service. State law caps each millage rate at 20 mills, which means the district could conceivably, and legally, impose a millage rate of 40 mills. Currently, the district’s operations rate is at 19.45 mills, while the debt service rate is at 0.4 mills.

An owner of a $200,000 house who only takes the standard homestead exemption would see an increase of $320 per year — from $1,549 to $1,869 — on his or her property tax bill if there is a 4 mill increase in the property tax rate, according to information from the school system.

According to the bond/SPLOST resolution that the Cherokee County Board of Education unanimously approved at its July 27 meeting, the school system has to generate enough property tax revenue to cover the debt if sales tax collections fail to do so.

“The voters of Cherokee County, in essence, already have authorized a millage rate increase as a measure permitting the levying of enough property tax to repay the bonds is included in each referendum to ensure collateral and assure creditors,” Petruzielo said.

However, any millage rate increase would require school board approval.

In the event of a worst case scenario, that voters fail to re-approve the SPLOST and the Board of Education denies a millage rate increase, the state could withhold funding to pay off debt and take action to compel the school board to increase the millage rate, Petruzielo said.

“The need is now, which is why we had to take out the bonds,” Post 4 school board member Janet Read said in an interview last week. “If the SPLOST was not renewed, we would have to look at the use of our facilities, and the debt still has to be paid, so we would have to look at raising the bond millage rate.”

With existing debt significantly higher that projected SPLOST collections and the possibility of taking on more debt, Cherokee residents could see future SPLOST requests or again face the risk of higher property taxes from the school system.

“It seems logical that authorization of this new debt will force a similar tough choice when the time comes to pay it off,” Post 3 Cherokee school board member Michael Geist said. “In the same way that the proposed SPLOST would be used in great part to pay off debt incurred over the last eight years, the voters are being asked whether they will agree to repay this proposed additional debt years from now. I think that in the light of current state and federal fiscal crises, public officials and the public should exercise great caution when it comes to borrowing from future taxpayers.”

In its SPLOST frequently asked questions document, the school system says it is not the only government body that pays for construction projects by packaging bond debt and SPLOST collections.

Cherokee County government has taken similar measures.

However, county officials say they handle SPLOST revenues and bond indebtedness differently.

Officials say all debt connected to the county’s current SPLOST, which also expires in 2012, will be paid off.

“The county (board of commissioners) has never borrowed against SPLOST revenues beyond the current term of an already approved SPLOST,” Post 1 County Commissioner Harry Johnston wrote in an email to the Tribune. “The school system has borrowed against future SPLOST revenues with the assumption that the voters will continue to approve future SPLOST referendums with an automatic property tax increase as a backup in case that doesn’t happen.”

Budget woes


With shrinking property tax collections and cuts in state education funding, the SPLOST initiatives have become the primary source of revenue for funding construction and infrastructure improvements.

According to the current budget, the Cherokee County School System has been hit with $121.3 million in state austerity cuts over the past decade — $26.6 million of that came this year.

Additionally, over the past three years, the school system has lost about $21.1 million in local property tax collections due to the slumping economy in the past three years.

State law also mandates that 65 percent of a school system’s budget be used for student instruction, which leaves little to be divided among other operations and construction.

HISTORY OF SPLOST


The Special Purpose Local Option Sales Tax has been allowed by the state of Georgia since 1985. Education SPLOSTs were allowed in 1997. Cherokee County voters first approved the Ed-SPLOST that same year. Collections ran from 1998 through 2002.

* Voters re-approved the Ed-SPLOST in 2001, with collections running from 2003 to 2007.

* The current SPLOST was approved in 2006. It will expire at the end of 2012.

* The Cherokee County School District is seeking a third renewal in the November elections. If approved, the school district will levy the 1-percent sales tax through 2017.

Source: Cherokee County School District and www.gasplost.org.
Anticipated annual revenues if voters approve another five-year SPLOST in November, which would span from 2013 to 2017


* 2013: $29,336,504

* 2014: $30,216,599

* 2015: $31,123,097

* 2016: $32,056,790

* 2017: $33,018,494

* Total five-year projection: $155,751,484

Source: Cherokee County School District
Comments
(2)
Comments-icon Post a Comment
Dean Sheridan
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July 01, 2013
Sounds like Dr. P has had a spending problem for a very long time. With those kind of numbers no wonder CCSD doesn't want the gravy train to end.. Ya think? Same old'e story. We see this over and over again with Bureaucracy across the Fruited Plain. Don't you dare ask any questions either ; because if you do you will get "publicly undressed" and the "attack" machine will be turned on. The article doesn't even address the projected unfunded mandates. $183 million dollars in interest - seriously?
RINO Hall
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July 01, 2013
I can't believe that Dr. P has done this to the school system. What happens when he retires and leaves us with these mounds of debt?
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