Pickerington Area Taxpayers Alliance

Debt Service

I think the property taxes will decrease and our effective millage will drop I believe around 5%. Now what must be answered is will the $77 Million debt on the North School complex take up the remainder of that debt and milage decreases?

Is the adjustable rate mortgage this school promoted in 2001 eating up all of the property tax capacity of the voters? Maybe our district needs to address that issue and get Ed Laramee here to explain how he is deducting and charging us for that huge debt up north. Maybe we would be better served with a FIXED rate debt service for this debt.

Amortization is the Problem

The problem with the North debt is not that it is variable rate, but that amortization of principal has been deferred -- like one of those home mortgage loans where you pay interest only for the first several years. Except that we aren't even paying all the interest as it accrues -- some of the bonds that were included in the mix are so-called ''zero coupon'' bonds on which interest accrues continuously, but is not payable until maturity.

This means that the debt service the PLSD must pay increases each year, rather than remaining level from year to year, as in a conventional home mortgage loan. There theory was that, as debt service increased, the PLSD tax base would expand, so that the actual millage paid by taxpayers would remain relatively level.

I vigorously opposed this financing structure when I was on the school board (which triggered the vicious personal attacks to which I was subjected). This also was one of the two reasons I voted against the North levy at the ballot box. The other was that the PLSD was asking voters for two much money. As everyone seems to realize now, the project needed to be significantly scaled back.

There are many problems with structuring a bond offering in a growing school district in this way. For instance, with level amortization, the millage required for debt service declines as the tax base grows, so that taxpayers are better able to afford the new millage required to meet the housing needs of the increased student population that invariably comes with the increased tax base. Deferring repayment of principal in this manner also increases total interest cost over the life of the bond offering -- by approximately 20%, in fact, in the case of the North bond offering.

But this is history now. Although we probably could refinance PHS North and PJHS Lakeview, that would cost money that we can ill afford to spend. But we must not repeat these mistakes.

My advice would be not to retain any investment banker who promotes ''no new millage'' and ''minimal new millage'' financing structures. Construction projects also need to be budgeted far more tightly, and money left over must be returned to us taxpayers, and not used to finance change orders, land purchases, or other pet projects. The PLSD can easily return such money to us by using it to help pay debt service on the bonds.

PLSD building projects, in my experience, always seem to expand to absorb every last cent available for them. One reason is that architects and construction managers generally receive a percentage of the total project cost, and thus have strong incentives to encourage school districts to spend every cent available.

We need a school board that will put a stop to this nonsense. So far, we have not had one. But we need one badly now.

Fix the debt issue

Mr. Rigelman you appear to be very knowledgeable on amortization and other financial instruments judging by your comments above. It also appears that our school board in 2001 or when ever they came up with this ''MINIMUM MILLAGE'' scheme were trying to over qualify the school district taxpayers into buying a bill of goods they couldn't afford. As we are currently reading in the news media there are a number of residential lenders over qualifying home buyers with low initial interest rates and not including the full value of their real estate taxes and these buyers only last a few years in a home before they must allow the lender to take back the property. Is this happening here in the PLSD on a much bigger scale?

My first question is what if we simply didn't make anymore payments on the $77 Million debt?

Would the lenders then be forced into foreclosing on the North High Complex and taking back the property?

Clearly these aggressive lenders bare some of the responsibility for the school district's financial problems. It also appears that in 2001 or when this scheme was hatched you appeared to be the only member of that school board that had any kind of financial experience dealing with public finance.

I understand that the courts do hold Governments and Business' to a higher standard than individuals when it comes to finance and legal contracts. Despite the fact that a school board is a government entity it is headed by very low paid members of the community who are not always experienced in all of the skills required to manage a $90 Million operating budget and over $100 Million of indebtedness.

It also appears that our school boards in Ohio hire mostly educators and not the staff attorneys or other financial experts required to guide the board members through a maze of legal jargon. So obviously the question then is who was the attorney for the school system? I believe I have heard it was Bricker and Eckler. Did they advise the board not to enter into this kind of finance package? My point being did we get bad legal advice. Obviously I understand you are an attorney and you might not be comfortable with answering that question. At the same time, as an experienced attorney you appear to now say you voted against the financial scheme and I doubt you as the attorney of record would have recommended a plan like this to the 2001 school board.

Then what is the remaining debt to be paid on the North Complex? Can the school convert it to a straight line amortization? Would it take another vote of the taxpayers? The millage on the original bond issue was around 11 mils. Has that 11 mils stayed at 11 mils or has it dropped like a certain Board member promised it would in 2001?

It is time to stop this damn pity party about how we the taxpayers are allowing the education system here in Pickerington to fail and address our own failures with the taxpayers. It is time we find some spine in our board members and correct one of the major issues facing the district taxpayers by the bill of goods sold to the taxpayers in 2001.

For those of us that must pay this creative financing every month we must get someone to address those previous board failures and fix the financial and debt structure of the school district and it must be done now.






By Voting No!

You're on the Right Track

You're on the right track, Voting No. The PLSD and the voters were encouraged, by the ''no new millage'' scheme sold to us by Fifth Third, to spend more on these two new schools than we could afford.

All things considered, this was very much like the questionable financing schemes currently being offered to home buyers by questionable builders and mortgage bankers. These schemes, like the ''no new millage scheme'' being sold school districts, encourage people to spend more than they can afford. This, no doubt, is one reason why Ohio now has such a high mortgage foreclosure rate.

The North/Lakeview bonds, however, would be hard to refinance, since they were sold to the public. We have only limited prepayment rights and there is no way, by law, that the Fairfield County Treasurer's office could stop collecting this millage and using it to pay scheduled debt service on these bonds.

What often is done, in such circumstances, is that the issuer ''defeases'' the bonds by purchasing Treasury securities or the like with payment features that mirror the debt service schedule on the bonds being defeased. These securities are purchased with the proceeds of the replacement bonds.

All things considered, however, it is a very expensive proposition, and generally makes sense only when interest rates have fallen significantly since the original bonds were issued. I doubt that such circumstances exist here. The PLSD could hire an investment banker (ideally one that is more objective than Fifth Third) to evaluate the possibilities. Even this, however, could easily cost more than it is worth.

What is important, here, is that the PLSD not repeat its past mistakes. It would be good, in this connection, if this community were to elect someone with more financial sophistication to the school board (although Wes Monhollen has substantial management experience, and is nobody's fool on these matters). There are people of this sort living in this community. None of them, however, seem interested in the challenge. Trust me, it's no walk in the park.

In answer to your last question, I was very dissatisfied, while on the board, with the representation the PLSD received from Bricker & Eckler, and would urge the school board to find other representation. They seemed to me not to realize that they represented this school district, not the superintendent.