Kudos to Verona: a look at Wisconsin
A friend sent me a pair of local news articles out of Wisconsin recently. Some of her friends there were telling her about a peculiar referendum coming out of Verona School District: a 10% decrease in the local tax rate, associated with a $19 million operations expenditure proposal.
The curious thing about the referendum, as you maybe can see from the second link, is that the school board went to the community to ask for permission to
manage and shift more funds to school operations away from prepayment of debt for the 2017 referendum for building the new $160 million Verona Area High School. The money could be used for course offerings, educational programs and salary increases for teachers.
Here's what happened. Looking at their budget for the coming year, the school board had a choice in front of them. They could either spend money on "course offerings, educational programs and salary increases for teachers" or "prepayment of debt" they took out to build a new high school in 2017.
The reason my friend was passing this news along to me and a couple organizers in the Debt Collective--leftists who like to geek out on stuff like this--is because it looked like the district was making a conscious and democratic decision to not pay its loans for school facilities. Instead paying JP Morgan, the underwriter for the bond, they wanted to pay for their actual educational programs.
This was exciting, since the bond they sold in 2017 is clearly a Wall Street bond and so it could be a case of a district standing up to the municipal bond market. Is it? Kind of. Let's take a look.
In fair Verona...
Verona Area School District is southwest of Madison, WI. Looking at the EdBuild dividing lines map below, we can see that the median property value in 2018 was $279,900, which is actually pretty good. It's shaped like a chubby chicken. The numbers for the district only get better.
According to the National Center for Education Statistics, the district serves around 5,600 students (medium-sized). They get 71% of their revenue from their own property value (high), with only 4% from the federal government. They spend about $17,000 per student. This district is 78% white.
The portrait emerges: this is a wealthy, white suburb with a lot of property value to work with. Good for them, I guess.
Salty kudos
The good news continues when we look at the bond statement from 2017. The district took out $85 million, with a Moody's credit rating of Aa3. Pretty high. Of course it's high given what we know about the district so far.
They got a 2% interest rate on the biggest tranche of this loan too, more good news. The cost of this issuance to JP Morgan, the lawyers, credit raters, consultants etcetera was $490,000, a comfortably low .006% of the total bond.
I get salty when I look at bonds like this. Of course, kudos to Verona for getting a low interest rate, high credit rating, and low cost of this deal. Slow clap. They're a suburb with an easy number of students to deal with and high property value. Awesome.
I'm salty because our racial capitalist structure of school finance is set up for places like Verona to succeed, whereas the city it borders, Madison, deals with more poverty, more diversity, more students, much lower median household income (half that of Verona's) and--shocker--double the interest rate and 8% higher cost of issuance on its most recent bond issuance from 2022 for facilities.
Savvy, not bravery
Getting back to our original question, was this brave move by a school district to stand up to JP Morgan and Wall Street? Sort of. From the articles above, we know that Verona is choosing to focus on educational programs instead of "prepayments" on the JP Morgan deal. That's a bit different than payments.
Prepayments are a way for districts to save some money on the back end of a big loan. It's an intentional payment plan. So, instead of doing that, they'll just pay it back normally. It's not like they're giving JP Morgan the middle finger. It's more like they're saying, "Hey, Wall Street, can we just pay you back on a regular schedule rather than the special one we worked out?"
I'm not sure it's bravery as much as savvy. Like I said, Verona can afford to be savvy--the banks know they'll pay up given their credit rating. And yeah, Verona actually gets to lower is tax rate now, helping out its citizens. This new referendum makes Verona's new mill rate (the amount of money they pay per $1,000 of assessed property value) 11.40, a 10% decline. Again, good for them. Given that the state of Wisconsin, from what I can tell, has no reimbursement program in place--or any state level school facilities finance policies--Verona's doing well on its own.
On the plus side, the case of Verona's referendum shows us the flexibility and contingency of this whole bond system. Districts with good credit ratings can just go to the banks and work out a different deal if they need. I'm not sure districts like Philly, Detroit, Milwaukee, or even poor rural districts nearby (I'm guessing) could negotiate like that, but there's room to do so. I'm thinking about the Fast 4 Education movements, for example, and how West Contra Costa SD in California took on IBM and won a new interest rate for some loans in the 1990s.
Social structure is pliable like that. The rock can move. The lesson of Verona for us is that--even though they've got the structural position of benefit--things are negotiable, even the most esoteric bond deals.