Morenci school bond 2013.07.03


Morenci Board of Education members watched a good situation turn sour as complications with the school bond emerge.

Voters overwhelmingly approved a bond in May that would allow the board to tackle a variety of maintenance and repair issues. As it stands now, the two main premises included in the bond proposal are no longer accurate, and as board president Scott Merillat described the situation, there’s no good way to turn.

Beverly Bonning of the Thrun law firm explained that a bond project is a promise to pay back a loan. A millage is levied to match the bond repayment schedule, and in Morenci’s case, voters were told the $2.9 million dollar project would be paid off without raising taxes. Instead, an existing levy would be extended for no net increase.

Sometimes problems emerge, Bonning said, and Morenci experienced that with the closure and removal of equipment from the plastics manufacturer.

In the past, she said, a situation of that nature would be met with a loan from the state’s School Bond Loan Fund. If the borrower had difficulty meeting the state’s repayment schedule, a waiver could be sought to stretch out the schedule.

A change in state law erased that option and now the district has a problem.

“This shows the real-life impact on how legislation affects education,” Bonning said. 

Why was it done when property values have been falling, causing millages to rise? That’s a good question to discuss with legislators, she said.

“Legislators didn’t want to take the money from the general fund to the loan fund,” Bonning said. “Instead local taxpayers are forced to pay.”

Merillat found the situation rather astonishing.

“The bond was approved at no extra cost to taxpayers and now we can increase taxes without a vote?” he asked.

That’s something he doesn’t want to do,  but board members don’t have many options.

“No matter which choice we make,” Merillat said, “it’s wrong.”

One option is to not issue any bonds, but then the maintenance work is never addressed and problems will only get worse. Money isn’t available in the school’s general fund to tackle the projects.

Another option is to sell fewer bonds this year, but even this approach would bring an increase in millage to taxpayers.

For example, the owner of an $80,000 home would pay an additional $27.60 a year, or $2.30 a month. The cost would increase to $36.40 the following year, then decrease the next two years before holding steady at 7.0 mills as listed in the bond proposal.

This option, according to the figures presented by the school’s bond financial advisor, Paul Stauder, would bring in only $1.8 million of the promised $2.9 million. That’s far too short of what’s needed, Merillat said.

In order to bring in the full $2.9 million, the board could sell all the bonds in December and start off with the same $36.40 extra. The following three years would rise as high as $56 a year extra ($4.67 a month), then drop to $36.40 for the remainder of the loan period in 2031.

Board trustee Larry Bruce said that a good explanation is needed for the public. The simplest reason, Bonning said, is that the district lost a major taxpayer and the remaining taxpayers will have to pay more.

If a new employer were to come in, she said, the millage rate would fall.

It’s clear to the board that no maintenance work will be tackled this summer and board members have until September to make a decision, if they were to sell bonds in December.

Bonning expressed her admiration to the school board for discussing the problem at a meeting. 

“Some clients would go underground with this,” she said. “You are not one of those clients and I can’t tell you how much I appreciate that. There was clearly an assumption that of course we’re going to talk about this.”

Merillat urges taxpayers to contact a board member to discuss the issue. He and other board members are seeking guidance from the public before making a decision.