Proposed changes to state loan program could limit schools' ability to buy tech

Michigan school districts are vying for $50 million in state money for technology – the first such investment by the state in about a dozen years.

Yet, at the very same time, school leaders are watching warily as legislation that could make it harder for them to borrow money to make technology investments may get lawmakers’ attention during the “lame duck” session.

Republican lawmakers and the Snyder administration are behind a four-bill package (Senate Bills 770-772 and 870) now in the House of Representatives that would make changes to Michigan’s School Bond Loan Fund, which school districts now can tap for help with debt service payments on new buildings or other capital improvements.

The bills passed the Senate last spring, but not without criticism.

In testimony presented to the Senate, Superintendent Nick Ceglarek of Hudsonville Public Schools questioned the constitutionality of the measures and stated:

“(P)assing this legislation puts the state in great risk by greatly limiting the state’s obligation to support school infrastructure across the state.”

School districts can’t sell bonds to cover the costs of computer software, IT staff or insurance on their computers, but they can to cover the costs of computer hardware and networks. Don Wotruba, deputy director of government relations for the Michigan Association of School Boards, says that avenue would narrow just as districts must find ways to make bigger technology investments if the legislation passes.

“The method by which we can borrow to meet that need is either going to be shut off or much more expensive for school districts,” Wotruba says. “It’s illogical to me.”

Under the current law, districts can roll over their debt by issuing new bonds -- even if they haven’t yet paid off all previous loans. Treasury officials say some districts have piled up so much debt they’ll be hard-pressed to ever pay it all off.

The program is capped at $1.5 billion. As of June 30, 131 school districts had $1.44 billion in outstanding loans covered by the statewide program. A document prepared for the Michigan School Business Officials this fall listed the Chippewa Valley Schools in Macomb County as having the single largest outstanding balance in the program, owing more than $143 million to the state. The Detroit Public Schools was a distant second at $76 million.

A Senate Fiscal Agency analysis on the program noted that it allows school districts to impose a lower millage rate on local taxpayers than their bond loads would otherwise dictate by transferring costs to the state.

“Although the State eventually will be repaid with interest, the State bears significant current and future costs. Local taxpayers have lower millage rates than would otherwise be possible; however, their debt millage is levied for a longer time and the loans increase the interest cost paid for a given project,” the analysis reports.

The state covers its end with dollars from the School Aid Fund – and the end is rising. For the fiscal 2012 year, the state assigned about $94 million. That amount rose to $120 million for the current year. Twenty-five million dollars is the equivalent of annual per-pupil grants for 3,623 students, at the minimum $6,900 level.

And by fiscal 2022, the Treasury Department projects a need for $200 million – if changes to the program aren’t made.

The legislation would move the cap to $1.8 billion on the amount of outstanding loans, which could mean no more pre-qualified loans would be approved once the cap is reached – possibly as early as fall 2014.

School districts could set a later repayment date for their loans than what the state sets only if they agree to ask local residents to pay more in property taxes – although the millage couldn’t exceed 13 mills. Residents also might see their taxes rise each year since millage levels would have to be recalculated annually under the bills.

"Without the changes specified in the bills, the School Aid Fund’s commitment to pay off loans would double by 2020," Gov. Rick Snyder's office stated. "The proposed changes would save the state approximately $1.5 billion over the next 20 years. These reforms are in line with the hard work the state has already done to bring down long term liabilities. Capping the state’s subsidy on the school loan program, coupled with the reforms made to put the school retirement system back on solid ground, provides a win for our school systems, our children and their education."

Kathy Barks Hoffman covered Michigan government and politics for more than two decades as a reporter for the Detroit News, the Lansing State Journal and the Associated Press, where she headed AP’s Lansing Bureau for nearly 17 years. She now works for the Public Affairs Practice of public relations firm Lambert, Edwards & Associates.

Senior Editor Derek Melot contributed to this report.