A reader wanted to better understand the reason the district moved $12.2 million from the building fund to the permanent improvement fund. It's a complicated explanation, but it is spring break, so let's get technical for a couple of days.
The district has a number of funds. For this series, we are only concerned with four funds: general, building, debt, and permanent. The general fund is for general operating expenses. The building fund is where the proceeds from the sale of bonds are initially deposited. The debt fund is where tax revenue to pay the maturing bonds is deposited. The permanent improvement fund is used for various capital expenditures (in general, improvements that have a life of five years or more).
Once a bond levy is approved by the voters, the district is authorized to sell bonds not to exceed the amount or length designated on the ballot. The district is not required to sell the bonds in the amount listed on the ballot, it can sell less. Though the authorization to sell, if unused, expires after five years.
The district does not have to sell all authorized bonds at once. And it can select various maturity dates. In essence, the district creates its own payment plan.
Let's assume the district passed a $1 million levy to build a new bus depot. The issue was advertised to be for a bus depot, but the ballot language authorizes the district to spend the $1 million on just about anything (read the actual ballot language before voting). So the district could sell the bonds and use the funds to renovate some administrative suites.
The bonds are packaged and sold and the proceeds deposited into the building fund. The next tax year, the district can choose (within bounds, of course) the mills to be collected the following year. The mills are collected and deposited into the debt fund.
I'll play nice and have the district build its bus depot. The payments are likely staggered, maybe over two years (depending on the build time). The unused money in the bond fund does not sit idle. It is invested and earns an interest return.
Since school bonds are tax-exempt, they are subject to IRS arbitration rules. Arbitration stops issuers of tax-exempt bonds from a earning profit from the spread between the interest on the bonds and the interest earned on investments. For the most part (with a few exceptions), any interest "profit" is "taxed" by the feds.
That said, the district pays no interest -- the taxpayers do. So, even though the district cannot earn a nominal profit, it can and does earn a real profit since it receives interest from the invested bonds proceeds while the taxpayers pay the interest on the bonds.
All interest earned from bonds is deposited in the general fund. This means that taxpayers are funding operating expenses with 27-year (for the most part) loans. Hmmm.
The district can overtax -- ask for more mills and hence more revenue than it needs to pay the bonds that are maturing. Again, money does not sit idle in the debt fund, it is invested and earns the district an interest return. Arbitration is not an issue here.
So it benefits the district over the taxpayer to sell more bonds than needed and tax more than is required.
It's no wonder that the district has close to $27 million over the various funds (including, since last year, the permanent improvement fund -- more to follow) more than it needs.
And it's no wonder that the district does its very best to hide those funds from their true owners -- the taxpayers.
--end part 1--