This week Senate Bill 187, authored by Sen. Chris Kapenga (R-Delafield) and Rep. John Macco (R-Ledgeview), received a public hearing in the Senate Economic Development, Commerce and Local Government Committee. The bill was also substantially changed at the last minute by a substitute amendment that was neither provided nor available to the public in advance of the hearing.
The new version includes the following major changes:
- No longer applies to revenue limit/operational referenda but instead applies to all bonding /construction referenda. This will impact many more school districts than the original bill.
- The initial resolution and ballot question to authorize borrowing must include a good faith estimate of the interest and related debt service costs that will be incurred on the debt and the sum of the principal, interest, and debt service costs that will be incurred. The bill now also states the estimate of the amount of interest to be incurred is to be based on the interest rate in effect immediately prior to the adoption of the resolution.
- Broadens the scope of the bill to all municipalities (counties, cities, villages) and not only school districts.
WASB testified in opposition to the bill despite some positive changes in the amendment. Because the substitute amendment was not publicly available on the Legislature’s website prior to the hearing, and because these changes were made during a holiday weekend, we were unable to reach out to our members or to legal or financial experts who work with school districts to determine what practical and financial impact the revised bill would have on districts. We testified it was disappointing and ironic that a bill that purports to advance greater transparency was taken up in a manner that lacked transparency. Other concerns we brought up to the committee:
- We are unsure of financial impact the substitute amendment will have on schools, but it is likely the revised bill will require schools to hire professionals to do the market analysis required. This would likely impose additional costs (an unfunded mandate) on school districts that are often strapped for resources whenever they are considering a borrowing referendum.
- Many of the borrowing referenda that are being placed before voters are to fund maintenance projects for school facilities. Buildings need periodic repair and upgrading. Not adequately funding K-12 education too often causes local maintenance projects to be deferred because boards prioritize protecting the programs and the quality staff that serve their children. Small problems become bigger problems if not attended to. Over time, these projects pile up to the point where the district is required to go to referendum because the expense involved exceeds the amount that can be borrowed without a referendum.
- The requirements in the substitute amendment will likely make things more difficult and complicated for districts that currently benefit from using their referendum authority to incur debt in several phases. In some cases, a district will use some of its bonding authority shortly after the referendum passes and will wait several years before using the rest of its bonding authority, particularly when the district is retiring or refinancing existing debt. Because the substitute amendment requires that a school district base its estimate on the interest rate in effect immediately prior to the adoption of the resolution, this could mean those figures will not accurately predict what interest rates will be when the later phases of bonds are issued.
- It is unclear whether the language in the bill requiring a district to provide a “good faith estimate” of the total amount of interest and debt service costs that will be incurred by the school district on the debt obligation will shield a district against a taxpayer lawsuit or the threat of a lawsuit aimed at trying to overturn the referendum result or delay the bond issuance by contesting the accuracy of these estimates. Because of the speed at which this amended bill is moving, we were not able to adequately research this issue.