March 28, 2018

$32.5M of Proposed Referendum Projects to Cost Local Taxpayers $9.75M

By Leah Hauser, Director of Business Services

Over the past 14 months, the District in partnership with the Community Task Force has been planning the upcoming referendum.  The process involved analyzing a multitude of complex data including mechanical systems, building layouts and limitations, and enrollment projections. As difficult as some of these topics can be to comprehend, arguably none are as complicated as how the funding works for the project. Communicating school finance is one of the most difficult, yet important, pieces of my job as the Director of Business Services. The finances that our District receives, whether for general operations or to construct new facilities, directly impact our students and the opportunities that they will (or will not) have in the future.

Wisconsin’s state aid formula plays an important role in how the proposed $32.5 million project will be funded, making the potential debt much different than common mortgage loans. To complicate matters, the state aid formula works differently for each district, with the main driver being property value per student. The Sparta Area School District is fortunate to be in a favorable position in the state aid formula, meaning that we receive a blended rate of 70% state aid for each dollar we spend, leaving $0.30 on each dollar to be paid by local taxpayers. This calculation also applies to all referendum approved debt, meaning that the $32.5 million dollar referendum would be paid approximately 70% by the state, leaving a local tax increase of $38 per $100,000 in property value. Following this methodology, the total cost of the $32.5 million dollar project that would be paid locally would be approximately $9,750,000.

The District has done a terrific job of managing debt over the past several decades. The only debt currently on the district’s books is the 1998 Referendum for the Meadowview building, and that will be paid off in 2019. The proposed $32.5 million referendum will be structured for debt payments to begin after the final 1998 referendum payment. The benefit to “replacing” the 1998 debt is that the local tax impact will be drastically minimized as the money that is currently being used to pay the 1998 debt will offset $22.5 million of the proposed new debt.

Timing is also currently beneficial for interest rates which are at historic lows with current rates of around 3%. On a $32.5 million borrowing interest at 3% would equal just over $12 million  (70% of which would be paid by state aid, the same as the debt) on a 30 year borrowing. The market is indicating that interest rates will begin to rise, with a potential of reaching over 4% within the year. That 1% increase would result in an additional $4 million of interest (totalling just over $16 million)  over the life of the loan, again 70% state aided.

These factors make now an ideal time to address our elementary space needs and provide the best educational opportunities for our students.