Friday, July 21, 2017

Mixed messages about the legal effect of bond passage, part 1

Before I discuss the bond proposal in more detail, I want to discuss a threshold question: If the voters pass the bond proposal, to what extent is the district legally constrained in its use of the bond money?

That’s a question raised by the Minnesota news story I cited in this post. As I wrote there, it may be better to ask: can voters have enough of a comfort level with the possibilities that they don’t have to worry about legal remedies? But how the district responds to the legal question now can affect people’s confidence about how it will act in the future. In this series of posts, I’ll review how the district has addressed the legal question over the last year.

In October, the administration provided the board with the following statement:
What if an event or events happen that require the District change plans over the five-year period? Can the District choose not to complete a project that was listed as part of the voter referendum? Remember, ALL of the projects included on the ballot MUST be completed. It is not appropriate for the District to not complete certain projects. If the District does not complete all the projects, the failure to do so may subject the District and the Bonds to voter challenge. The projects as described in the ballot and to the voters MUST be done. The District can’t decide Project XYZ is no longer feasible after four years and simply not do it. Also, if there is excess capacity and the District wants to use it to build an auditorium, but that wasn’t a project included on the ballot, then G.O. Bonds may not be issued nor can G.O. Bond proceeds be used for that project.
(The all caps appear in the original; emphasis in bold added here.)

That’s a pretty strong statement about the legal effect of bond passage. As we discussed the issue in that work session, though, a somewhat different message came through. The board’s chief financial officer said:
Can you change plans once it’s approved? No, you can’t. You have to do what you tell the voters you’re going to do. Pure and simple, you’ve got to carry it through. Now, if you issue the bonds, that is. If you don’t issue the bonds, then you can do the projects using sales tax dollars and not run amok of the law in what you said you were going to do in the referendum. So, even though they gave you approval to do these projects, if you don’t issue the bonds for them and you choose to do them through sales tax, that’s okay. But once you issue the bonds, you better carry through with what you told the voters you were going to do. That’s how you have to look at this.
(Emphasis added; full recording here.)

Voter passage of the bond proposal is different from the actual issuance of the bonds, which occurs later (in some instances, years later) and in several stages. To issue the actual bonds, the district has to be very specific about the planned use of the money, and its legal obligations at that point are much clearer and more constraining. But the chief financial officer’s statement left some uncertainty about how constrained the district would be after voter approval but before it issues the bonds.

This basic question would arise several times as the board discussed the bond proposal. Continued in part 2.


amy said...

I remain concerned primarily about the size of the money relative to the district and the potential for running us into serious financial problems, particularly if the underwriters are cleverer than the board(s) and admin(s) are. It wouldn't be a novelty; as we've seen, other school districts have run themselves into serious trouble this way.

One thing I'm trying to establish is whether or not there is in fact a school-district property-tax levy cap in Iowa. So far, I am not finding anything that mentions any such thing. If there is in fact no legal constraint on the size of the levy, and we accidentally get ourselves in deep on $200M worth of borrowing over a relatively short span, I want to know about the potential for painfully large tax increases that coincidentally make it impossible to borrow for other needs, school, city, or county, until the giant school-facilities debt is cleared. (Of course, even if the levy is capped, we'd still have to pay it off, no doubt from operating funds, as the districts in trouble seem to be doing.)

The Yes campaign has a tidy number for us, and insists that that's the number, but that's not a realistic way of looking at this.

Anyway. If anyone knows about a school-bond-related levy cap, I'd like to know about it.

Chris said...

Amy -- This may address your question. There is also a debt limit in Article IX of the state constitution. See also items 10 and 11 here.

Anonymous said...

Proponents have been responding to concerns about trust by saying it doesn't really matter whether or not we trust Murley or the board majority, because they are LEGALLY REQUIRED to do what they say they're going to do.

Gee that's odd that they didn't mention this gigantic loophole: between voter passage and bond issuance they can make whatever changes they want.

Thanks Chris for pointing this out.

Urk said...

Every project on the FMP has been completed according to the plan. Changes to the plan have been discussed in open meetings and work sessions and voted on by elected board members. We have an excellent precedent for being faithful to the plan in this district,and that seems more instructive than pulling unhappy examples from another district with a different history, different funding methods, and different problems.

It would be foolish to embark on a plan like this without allowing for some flexibility as needs develop. The recourse for worries about how the bond money will be spent is to vote for board members you trust to oversee it. Otherwise what you're making here is simply an argument for never voting for any bond ever.

Anonymous said...

The people I trust may not be the board majority on the next board. I do vote, and I fully realize that the most trustworthy people may not be on the board!

Yet another reason to vote no, so the next time we at least know the makeup of the board when the first bond is actually taken out. People may have more trust in the whole process when they know the board in place for at least one of the bond issuances.