The good news is that those debt costs will drop by more than 42%, to less than $8 million, starting in the 2018-2019 school year. Woo hoo!
The problem is that the school district is under a great deal of financial stress right now. Last year’s budget included cuts to all school buildings, the use of reserve funds, yet still required a tax increase. The coming budget looks like more of the same: Employee retirement benefit costs are estimated to rise again by almost 15% — an amount set by the state but borne by local taxpayers. The district is also required by law to hire two additional special education teachers because of rising enrollment in special education programs. This is all on top of the fact that the politicians in Harrisburg continue to hold up funding to local school districts, which makes up almost 20% of East Penn’s revenue.
In order to at least partially address these issues, the district administration has put forward a proposal to restructure some of the district’s debt. The restructuring would provide immediate debt relief over the next couple of years, freeing up millions of dollars that could be used to cover these other costs. But alas, there is no such thing as free money. The restructuring would actually cost taxpayers more money in the long run — to the tune of about $200,000. The current restructuring plan produces short terms savings but at greater overall cost in the long term.
There are some very good reasons to adopt this restructuring plan:
- The plan would reduce the immediate pressure on taxpayers.
- It would help fix the structural deficit and restore last year’s funding cuts.
- It would help pay for a number of immediate district needs.
On the other hand, there are also some very good reasons to reject the restructuring plan:
- Most importantly, it will cost almost $200,000 more over the long run.
- It reduces the debt relief the district could enjoy beginning in 2019.
Let me say a little about this last point, because it’s important: In two years, the district will pay $5.8 million less in debt payments. That “extra” $5.8 million could be used for initiatives of importance to our community. A tax cut, for example. Or a program to ensure every child has access to a computer at home. Or all-day kindergarten. If we restructure the debt now, the district will only realize a debt savings of $2.7 million in 2019. That money, while significant, won’t stretch as far for community priorities.
PS: There is an important distinction between this restructuring proposal and the debt refinancing the district has done several times over the last two years. The refinancing has lowered the interest rate the district has to pay on its debt, saving taxpayers hundreds of thousands of dollars each time. These are real savings. By contrast, the restructuring plan gives us short term relief but at a greater overall expense.