A DIFFERENT OPINION ON THE SALE OF LINCOLN AND LIBERTY PROPERTIES

Amazing Finances

By Paul Raynault

The City of Englewood and the Englewood School Board have entered into a series of very complicated financial transactions. Let us hope that there are good reasons for this and it is not just an attempt to hide the true situation from the homeowners and taxpayers. Our elected officials need to be very clear about what they are dong and why. This report is an attempt to understand what the City and the School Board are really doing based on the information made public.

As you review these numbers, keep in mind that we homeowners finance both budgets – the City and Board of Education. Transferring money from one budget to the other does not help or hurt taxpayers. The main question is why this complicated transaction is being done this way and why the City is giving more money to the schools.

The School Board announced that they want to build a new elementary school building, make major improvements to existing buildings and sell two buildings – the Liberty and Lincoln buildings. The City has agreed to buy these buildings immediately for a very high price, almost twice what the Board was originally expecting. However the sale was structured in a very complicated way. Part of this is because the City wants to give some of the money now but the Board needs to continue using these buildings for three or four more years until a new elementary school building is constructed. Another issue is that the voters might never approve the large sums needed in which case the sale could be cancelled.

The City has listed how it is giving money to the Board of Education in the last draft of purchase agreement made public:

Money paid in September:

Non refundable donation to fix the North High School building Four year interest free advance split into two parts (theoretically to be repaid if voters don’t approve a $50,400,000 construction)	$1,500,000
To allow the Board to qualify for State aid (matching funds)	$2,500,000
To repay two previous loans from the City totaling $1,415,000	$ 700,000
Total	$4,700,000
Money paid in four years if voters approve a $48 million construction plan: Realistic value of the buildings being sold	$6,800,000
Grand Total Contract	$11,500,000

Residents recently voted against increasing the school budget by 12.5%. Despite this citywide vote, our councilmen decided to ignore the voters wishes and approve this large increase. Previously the school Superintendent, Dr. Greico, had asked for an even bigger budget. The town council and the Board of Education knew they could never get direct approval for even more funds after the original budget was voted down. The City needed some other way to use more taxpayer money for the school. This plan transfers money from the City budget to the School budget by including extra money in a building sale.

In addition, the city wanted to have some control over how these funds were spent, so the last contract draft is very detailed. It is rather unusual to find the buyer (the City), telling the seller (the School Board) in great detail exactly how to use the money. Clearly this is no ordinary arms length sale, but rather a way for the city to take partial control of our tax money for the schools.

How you view this will depend on two issues – whether you agree with what the city’s decisions about how the money is used and whether you agree with the methods used.

As outlined above, the money is separated into five categories:

• The city is making a completely non refundable donation of $1.5 million to help fix the North High School building. Since it is non-refundable even if the buildings are never sold, it is clearly not related to the sale of the buildings. Including this in the same document is confusing.

• The city is advancing $3.2 million that perhaps will be repaid if the voters do not approve the referendum for new buildings by 2007. All this money is being spent this year but the reconstruction plans will be voted on in the future. This will provide a lot of pressure on taxpayers to vote on the referendum. If the referendum is turned down, the school will immediately owe the city $3.2 million which will again require a very significant tax increase, in one or two years.

• The city is providing $2.5 million so that the school can qualify for matching funds state aid. This will provide the school a total of $6.5 million additional this year. This might be used as an excuse to ask for a further large tax increase. Since this is a one time payment it really should be used for construction or other one time costs.

• The city previously gave the school $3 million. The state is expecting to reimburse $2.25 million so the city will still be owed $750,000. In addition, the city paid $665,000 for the fulltime Pre-K program last year. This totals $1,415,000. The city has agreed to settle this by holding back $700,000 from the artificially high price being paid. Even if the buildings are never sold, the city has agreed to this lower amount. This means the city is giving the school an additional $715,000 through forgiveness with no stated explanation.

• In about four years if the buildings are in fact sold, the city will pay $6,800,000 which appears to be the true value of the buildings as previously determined by the Board of Education. This money will probably be available to offset part of the cost of constructing new buildings.

Result

In fact, this involves three separate unrelated transactions presented as if it was the sale of two buildings:

• The city is making two outright donations:

$1,500,000 for the High School renovation

$ 715,000 as forgiveness of part of the funds given by our 5 councilmen

$2,215,000 total that never gets repaid

• The city is making two no interest payments up front:

$2,500,000 to allow the school to collect the state aid

$ 700,000 to repay itself in part for funds last year

$3,300,000 total that must be repaid if the $48 million in construction is not approved in 4 years time

• The city is committing to buy the buildings in the future:

$6,800,000 this is the only part of the transaction that appears to involve the sale of the two buildings

Questions

• Englewood recently changed the way the school is governed. Residents must now vote on all school budgets. However, the city has decided to give a lot of taxpayer money to the school without any voters involvement. Is this a reasonable way to proceed?

• Since the voters turned down a higher budget and the city council voted to uphold it, should the school now get even more money?

• What will happen next year when these options are not available? Will taxes again go up?

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