New Debt Proposed for School Districts

May 18, 2011

Investigative Reports

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The NerveAt least four South Carolina school districts would be able to sell bonds – without voter approval – to finance general operations, under four bills introduced recently in the General Assembly.

Because all of the proposed bonds would be general obligation bonds guaranteed by the districts, property owners could see tax hikes to repay the bond principal and interest.

But lawmakers who sponsored two of the bills and the chief financial officer of one of the affected districts contend that won’t happen.

The four school districts covered under the bills are Colleton County, Hampton County District 2, Florence County School District 4 and Jasper County.

In addition, under a joint resolution by Rep. Leon Stavrinakis, D-Charleston, which passed the House in April and is now in the Senate, the Charleston County School District could use general obligation bonds for school operations, though any bonds used for that purpose would have to be repaid within a year.

The four bills and the joint resolution are “local” measures, which means that typically only the county’s respective legislative delegation votes on them.  Any gubernatorial vetoes can be overridden by just one lawmaker if every other legislator doesn’t vote.

Last year, local delegations overrode then-Gov. Mark Sanford’s vetoes on three of four local bills granting bond authority to school districts for general operations. Orangeburg County District 4, York County District 4, and Sumter County districts 2 and 17 were granted the authority; the Senate sustained Sanford’s veto on a bill that would have granted similar authority to the Georgetown County School District.

All of the latest four bills state in their first section that additional revenue is needed to make up for the loss of state general funds or federal stimulus dollars, which has “resulted in a budgetary crisis.”  The bills, if passed, would be effective for two or three fiscal years, depending on the district.

Total fund balances at the end of last fiscal year ranged from about $2.3 million to $3 million in the Colleton, Hampton District 2 and Jasper districts; Florence District 4 listed a negative fund balance of $1.3 million, S.C. Department of Education records show. The department could not provide a breakdown of current balances for the districts.

“They have overspent and are in a deficit,” Sen. John Land, D-Clarendon, said about Florence District 4 when contacted last week by The Nerve. “They believe they can pull themselves out of that with this infusion of funds.”

Land is the sole sponsor of S. 785, which would allow the district to sell up to $1 million in general obligation bonds “without an election” to “mitigate a deficit” for fiscal years 2012 and 2013. Initially, the maximum bond limit was $2.5 million, but the bill was amended to the lower limit, he said.

The bill specifies that the proceeds of the bond sale would be used “only to fund teacher salaries.”

Land said his bill, if passed, would not result in any property tax increase.  Instead, he contended it “allows them (the district) to borrow money in anticipation of revenues from the state and local taxes.”

Florence 4’s financial woes have led to some discussion of merging the district with Florence District 1, though Land said that “no one is going to take them in as long as they are in debt.”

Florence District 4 Superintendent Bertha McCants did not return a call last week from The Nerve.

Land introduced his bill on April 7; on April 12, it was approved unanimously on second reading by the only four senators who voted on it: Land, Republican Hugh Leatherman of Florence County, Democrat Yancey McGill of Williamsburg County and Democrat Kent Williams of Marion County. All four senators’ districts include parts of Florence County.

The bill was referred to the Florence County delegation in the House, which gave it a favorable report on May 12. It was scheduled Tuesday for second reading on the chamber’s local uncontested bill calendar, though debate was adjourned until today.

Last week, Sen. Clementa Pinckney, D-Jasper, introduced two similar bills – S. 877, which covers Hampton District 2; and S. 884, which covers Jasper County.

Contacted by The Nerve, Pinckney said his bill for Hampton District 2 would not result in any tax hike. Rather, he said the proposed bond sale would “essentially allow the school district … to get a revenue anticipation loan to basically receive a loan from a local bank to fund their operations.”

“This allows them to better manage their cash flow and help them remain solvent,” he said. “It’s a short-term anticipation loan to a local board – sort of a bridge loan.”

When asked about the costs of the proposed bonds, Pinckney replied, “The cost is very minimal; we’re not talking about 30 years into the future.”

Although the bill was introduced after the May 1 crossover date, which would require a two-thirds vote of the House to accept it for consideration, Pinckney said it likely wouldn’t be a problem because he expects only the Hampton County delegation would vote on it.

J.J. Orr, Hampton District 2’s chief financial officer, told The Nerve last week that the bill would give his district flexibility to issue bonds for general operations in addition to bonds for capital projects. Any bonds sold to support general operations, along with bonds for capital projects,  would be subject to a state constitutional cap of 8 percent of the district’s assessed property valuation, he said.

Orr said if the bill passes, he would likely recommend selling about $900,000 in bonds for general operations next fiscal year, to be repaid in full with another type of loan known as a tax anticipation note (TAN), which he said is capped at a percentage of total anticipated property tax revenues for the upcoming year.

Orr said the proposed bonds under Pinckney’s bill are needed to improve the district’s cash flow mainly because of a loss of state funding in recent years, which resulted in a greater-than-expected drawdown of district reserves.

Reserves currently stand at about $700,000, Orr said, noting that equates to about one month’s total payroll. The district has lost about $2 million over the past several years in state funding; the total budget this fiscal year is about $16 million, he said.

“If you’re a small, rural district, you can’t wait four to six weeks for reimbursement from the state,” Orr said.

Orr said the bond proposal under Pinckney’s bill “will not be a tax increase,” adding that any proposed millage increases must be approved by Hampton County Council.

Pinckney said he introduced his other bill last week dealing with Jasper County as a “pre-emptive” measure.

“I haven’t had the chance to speak to their superintendent or school board chairman,” he said. “(But) I don’t want to run out of time in case there is a need.”

The regular legislative session is tentatively scheduled to end June 2, though lawmakers are expected to return later that month to deal with any gubernatorial vetoes and the redrawing of legislative district lines.

The fourth local bill (H. 4149), introduced April 28 by Rep. Kenneth Hodges, D-Colleton, would allow up to $2.5 million in bonds to be sold to support general operations in the Colleton County School District “so as to mitigate a deficit” for this fiscal year and the next two fiscal years.

Hodges and Leila Williams, the district’s superintendent, did not respond to written or phone messages last week from The Nerve.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.