With the financial uncertainty caused by COVID-19, school districts must be more strategic than ever when it comes to managing debt. For the February session of Fanning Howey’s Smart Schools Roundtable, we held sessions for both Indiana and Ohio. For Indiana we heard from Jane Herndon and Kristin McClellan, partners at law firm, Ice Miller Legal Counsel, where they specialize in school financing. Jane and Kristin shared their legal expertise on navigating the complex process of financing school facility projects.
Get Started with the Right Team
Begin with bringing your team of experts together, including your legal counsel, before moving into the financing process. This group consists of school administrators, project experts and legal specialties like your bond council, local council and underwriter or municipal advisor. Your council team will help you navigate the intricacies of local municipalities and the legal aspect of funding your project from code compliance to grant opportunities.
Methods of Financing School Projects
Once you’ve established that a project is viable, you have figured out the design and construction process and gotten the right community support it is time to look at the most appropriate financing method. There are two main avenues for financing capital projects: operations funds such as cash funds or energy savings loans and debt-service funds such as common school fund loans, general obligation bonds or lease rental bonds. Debt-service funds, specifically bond funds, are the most common financing methods.
General Obligation Bond Features:
- Direct obligation of School Corporation
- Fewer steps, quicker & cheaper
- Must be competitively bid (Exceptions for certain school corporations located in second class cities)
- Uses up debt capacity (emergency considerations)
Lease Rental Bond Features:
- Not subject to debt limit
- May be negotiated or sold competitively
- Takes more time & typically more expensive
- Mortgage of property
- Another entity – Building Corporation – must be involved
- 3-5 members
- Familiar with School Corporation
The type of project and debt considerations will determine the most appropriate avenue for funding your capital projects. When you’re trying to finance a school project, think about the political, the practical and the legal aspects of financing facility construction.
It is important to remember that in Indiana project funding may defer in election years, and school corporations may need to adjust their funding on off cycle years. Therefore, if you think you need to go to referendum or you may be required to put a referendum question on the ballot, make sure to understand when the upcoming elections will occur. Whether moving forward with a referendum or not, districts must keep the tax cap in mind.
Property tax caps in Indiana is a constitutional amendment that established caps on how much different entities will pay in taxes. The significance of a referendum is that, if your project goes that route, and you win, that means the debt associated with that project would be outside of the tax caps. On the other hand if their is no taxpayer opposition or referendum needed, that means the debt issue to finance that project would be within the tax caps. School corporations have to account for the loss when tax caps are in play. With the right team in place, districts can navigate the best choices for funding projects based on their facility needs as well as their financial circumstances.
Register now for our March session:
WHEN: March 11, 2021 at 12:00PM (EST)
Mount Vernon City Schools
A long time educator and administrator, Superintendent Seder has served the Mount Vernon City Schools community since 2013. Throughout his career at various Ohio districts, Seder championed partnerships with public and private entities to enhance educational programming opportunities.
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